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Full text of "Investigation of the Special Service Staff of the Internal Revenue Service"

'^ll^t sls&lT } COmOTTEE PRINT 



INVESTIGATION OF THE SPECIAL SERVICE 

STAFF OF THE INTERNAL 

REVENUE SERVICE 



Prepared for the 

JOINT COMMITTEE ON 
INTERNAL REVENUE TAXATION 

By Its Staff 




JUNE 5, 1975 



U.S. GOVERNMENT PRINTING OFFICE 
62-219 WASHINGTON : 1975 JCS-9-76 



CONGRESS OF THE UNITED STATES 
JoixT Committee OoV Internal Revenue Taxation 

House Senate 

AL ULLMAN, Oregon, Chairman RUSSELL B. LONG, Louisiana, 

JAMES A. BURKE, Massachusetts Vice Chairman 

DAN ROSTENKOWSKI, Illinois HERMAN E. TALMADGE, Georgia 

HERMAN T. SCHNEEBELI, Pennsylvania VANCE R. HARTKE, Indiana 
BARBER B. CONABLE, Je., New York CARL T. CURTIS, Nebraska 

PAUL J. FANNIN, Arizona 
Laurence N. Woodworth, CJiief of Staff 
Lincoln Arnold, Beputy Chief of Staff 

(II) 



LETTER OF TRANSMITTAL 

Congress of the United States, 
Joint Committee on Internal Revenue Taxation, 

Washington^ D.C, June 5, 197o. 
Hon. Al Ullman, Chairman^ 
Hon. Russell B. Long, Vice Chairman^ 

Joint Committee on Intenml Revenue Taxation^ U.S. Co?igresSj Y/ash- 
ington, B.C. 

Dear Messrs. Chairmen : In its meeting on June 28, 1973, the Joint 
Committee on Internal Revenue Taxation instructed its staff to in- 
vestigate charges that the Nixon administration used the Internal 
Revenue Service, in its enforcement of the Federal tax laws, for parti- 
san political purposes. 

This document deals v^ith the results of the staff investigation on the 
Special Service Staff, a special unit created in 1969 by the Internal 
Revenue Service to gather information on so-called "extremist" orga- 
nizations and individuals. It also deals with a previous "Ideologica,l 
Organizations" project of the Internal Revenue Service that began in 
1961, during the Kemiedy administration. 

The staff previously/ reported (on December 20, 1973) , the results of 
its investigation with respect to the treatment by the Internal Revenue 
Service of individuals whose names appear on two lists of political 
opponents m.ade up by the White House staff. That report included 
some information on the Special Service Staff. At the time of the prior 
report, hovcever, the Joint Committee staff did not have access to the 
complete files of the Special Service Staff. Since that time, the Joint 
Committee staff has obtained access and is, therefore, able to report to 
the committee. 

This report was prepared in large part from the examination of the 
Internal Revenue Service's files and records and from interviews with 
IRS personnel and others. In some cases the staff carried on independ- 
ent investigations outside the Internal Revenue Service. The staff has 
had ih<^ complete cooperation of the Commissioner of Internal Reve- 
nue, Donald C. Alexander, and his staff throughout this investigation. 
Sincerely yours, 

Laurence N. Woodworth, 

CMef of Staff, 



CONTENTS 



Paffe 

I . Introduction 1 

II. Summary 

Formation of Special Service Staff 5 

Development and termination of the SSS 6 

Special Service S.taff files 7 

Coordination with other government units 8 

^ Field referrals 9 

Field referrals on war tax resisters 12 

Coordination with exempt organizations branch 13 

Previous "Ideological Organizations" project 13 

III. Formation of Special Service Staff 15 

Summary 15 

Background 16 

White House 16 

Permanent Subcommittee on Investigations of the Senate Com- 
mittee on Government Operations 23 

Other factors affecting the Internal Revenue Service 28 

Decision to set up the SSS 28 

Appendix 29 

IV. Development and Termination of the Special Service Staff 33 

Summary __ 33 

Establishment of the SSS . .__ _. 34 

Early focus of the SSS 36 

Development of the SSS, 1969-72 ._ 37 

Development of the SSS, 1972-73 39 

Termination of SSS 41 

Phaseout of operations of SSS 42 

V. Special Service Staff files 45 

Summary 45 

Files examined 46 

SSS criteria for establishing files _ _ 46 

Subjects of the SSS files 47 

Sources of names and information for SSS files 48 

Growth of files 52 

Maintenance of files 53 

Contents of files 53 

VI. Coordination with other government units 57 

Summary 57 

Information received by the SSS from other Federal agencies 57 

Information received from congressional committees 64 

Information received from State and local governments 65 

Information provided to other government agencies and con- 
gressional committees 66 

Communications with the White House 68 

VII. Field referrals 73 

Summary 73 

Referral selection procedures 76 

Method of referral to the field 79 

Action taken by the field 81 

Summary of field referrals 84 

Subsequent field action concerning SSS referrals 87 

VIII. Field referrals on war tax resisters 89 

Summary 89 

Origins of SSS activity on war tax resisters 89 

Sources of war tax resister files 90 

Field referrals of war tax resister cases ^^_, 90 

(V) 



VI 

' Page 

IX. Coordination with exempt organizations branch 93 

Summary 93 

Procedure for SSS coordination with exempt organizations 

branch 93 

Methods of coordination — In general 95 

Function of SSS and use of SSS information 96 

Number of cases referred and dispositions 98 

X. Previous "ideological organizations" project 101 

Introduction 101 

Summary , iQl 

First-phase program 102 

Second-phase program 106 

XI. Committee considerations 111 

Accumulation of information on political activities 111 

Basis for reviewing compliance with the tax laws 112 

Relationship between the White House and Internal Revenue 

Service 112 

Information to be used in determining exempt status 113 

Reviewing actions by the IRS 114 



I. 

In July 1969 tlie Internal Eevenue Service established a special unit 
to gather information about so-called "extremist" organizations and 
individuals. This unit began operating in August 1969. It was first 
called the Activist Organizations Committee; later, its name was 
changed to the Special Service Group, and subsequently to the Special 
Service Staff ("SSS").^ _ 

In its previous investigation on the political use of the Internal 
Eevenue Service,^ the staff examined the cases of 37 individuals who 
were the subject of referrals by the SSS to the Audit, Collection or In- 
telligence Divisions. At that time, the staff was not allowed access to 
the complete files of the SSS. Accordingly, a number of questions 
about the formation and opera,tion of the SSS were left open at the 
time of the staff's previous investigation. 

In its current investigation, the staff has focused on a number of 
issues dealing with the formation and operation of the SSS. This 
report discusses who formed the SSS and the influence exercised by 
the '\'\niite House and the Congress on the IRS which may have con- 
tributed to the formation of the SSS. The report also describes the in- 
formation collected by the SSS and the means by v/hich the informa- 
tion was collected. 

In addition the report describes the audit, collection, ov intelligence 
nctivity that took place as a result of SSS actions. This report also 
discusses the impact of SSS activities on the determination of the 
exempt status of an organization. Additionally, the relationships of 
tlie SSS with other government agencies, such as the FBI, and with 
certain congressional committees are also described. 

The staff also has examined a previous "Ideological Organizations" 
project of the Internal Revenue Service. This proiect began in 1961, 
and had been substantially completed in 1966. While this project 
involved a smaller number of organizations than the SSS,' never- 
theless, it appears to present some parallels to the SSS with respect 
to outside influence on actions of the Internal Revenue Service re- 
garding "extremist" organizations. 

The staff investigation consisted largely of reviewing SSS flies, 
reviewing Internal Revenue Service field files on individuals and 
organizations who were the subject of SSS field referrals, and review- 
ino: the Exempt Or^'anizations Branch files on exempt organizations 
with which the SSS had become involved. Internal Revenue Service 
administrative files clealina: with the SSS also were reviewed. The 



1 This report will generally use the term "SSS". althongh for reasons of clarity, the 
full name appropriate to the time in question is sometimes used. 

3 Investigation into certain charges of the use of the Internal Revenue Service for politi- 
cal purposes, prepared for the Joint Committee on Internal Revenue Taxation by its staff, 
93(1 Con?.. 1st Sess. (Com. Print, Dec. 20, 1973). 

^ The Tdeolop:ical Orffanizations project involved less than 50 orfranizatious. The SSS 
hid files on over 11,000 individuals and organizations, and initiated field referrals on 
225 persons. 

(1) 



staff interviewed over 30 people, including individuals presently 
employed with the Service and the Treasury, people previously em- 
ployed with the Service, and others. The staff had the full and com- 
plete cooperation of the Commissioner of Internal Revenue, Donald C 
Alexander, and his staff throughout tliis investigation. 

The Special Service Staff also has been of interest to other commit- 
tees of the Congress which are concerned primarily with matters other 
than tax administration. For example, in December 1974 former Sen- 
ator Sam J. Ervin, Jr. released a report on the SSS by the staff of the 
Subcommittee on Constitutional Rights of the Senate Committee on 
the Judiciary.* This report focused largely on the constitutional 
issues involved in the SSS and provided a substantial amount of infor- 
mation about the operation of the SSS. However, since the staff of 
the Subcommittee on Constitutional Rights did not have access to 
tax information, it was not able to fully deal with the impact of the 
SSS within the Internal Revenue Service.' The Joint Committee staff 
investigation has focused to a substantial extent on this issue.^ 

Present law< — collection of political information by the IBS. — Pres- 
ent law provides that tax-exempt charitable, educational, etc., organi- 
zations cannot participate or intervene in any political campaign for 
public office. Also, "no substantial part of the activities" of such or- 
ganizations can be "carrying on propaganda, or otherwise attempting, 
to influence legislation." (Sec. 501(c) (3) of the Code.) 

The regulations under these provisions provide that a charitable, 
educational, etc., organization cannot be tax-exempt if it is an "action 
organization." (Regs. § 1.501(c) (3)-l(c) (3).) An organization is an 
action organization if a substantial part of its activities is attempting 
to influence legislation by advocating the adoption or rejection of leg- 
islation, etc., or if its primary objectives can only be realized by legis- 
lation (or the defeat of proposed legislation) and if it advocates or 
campaigns for the attainment of these objectives. An action organiza- 
tion also is an organization that intervenes directly or indirectly in a 
political campaign for or against any candidate for public office. 

In the Tax Reform Act of 1969 (P.L. 91-172) the Congress con- 
cluded that there should be additional restrictions on the political 
activity of tax exempt private foundations. In this Act, private foun- 
dations generally were forbidden (on penalty of an excise tax) to 
spend money in attempting to influence legislation through grassroots 
lobbying or through direct communication with members of legislative 
bodies, and also were forbidden to engage in activities to influence the 
outcome of any specific public election. (Sec. 4945(d) of the Code.) 
The Congress found that these provisions were needed in the case of 



* Political Intelligence in the Internal Revenue Service: The Special Service Staff. A 
Documentary Analysis prepared by the staff of the Subcommittee on Constitutional Rights 
of the Senate Committee on the Turticlary, 93rd Cong., 2d Sess., (Com. Print Dec. 1974). 

^ For example, the Subcommittee staff report could not determine "whether or how 
often Special Service Staff review actually prevented the Issuance of a favorable ruling on 
an application for tax-exempt status." The Subcommittee staff report suggested that this 
"Is an inquiry that would have to be made by one of the tax committees of Congress." 
Id. at 26. Also, the Subcommittee Staff was "unable to determine through Its examination 
whether any adverse tax action.^! were later brought to bear against the individuals and 
organizations identified [by the SSS]." Id. at 47. 

"To protect the privacy of the persons involved, this report does not Include the names 
of any individuals or organizations that were the subject of the IRS actions examined by 
the staff. However, the staff is informed that, pursuant to the Freedom of Information Act 
(5_ U.S.C. sec. 552), the IRS will inform a person (on his request) whether the SSS main- 
tained a file on Mm, and will inform him of the contents of that file. 



private foundations to eliminate the ambigTiity of prior law regarding 
lobbying and to prevent the use of private foundation funds in cam- 
paign activities. 

The regulations governing exempt organizations also provide that 
an organization may be treated as an exempt "educational" organiza- 
tion if it provides "a sufficiently full and fair exposition of the per- 
tinent .facts" to allow an independent conclusion to be di-awn. How- 
ever, an organization is not educational "if its principal function is 
the mere presentation of unsupported opinion." (Kegs. § 1.501 (c) 
(3)-l(d) (3).) The reports of both the House Ways and Means Com- 
mittee and the Senate Finance Committee on the Tax Reform Act 
of 1969 indicate concern that private foundations should not use "edu- 
cational" grants to subsidize the preparation of material furthering 
specific political viewpoints.'' 

It appears that to properly administer present law the Service is 
required to examine the political activities of many tax-exempt or- 
ganizations. This requirement would extend to exempt organizations 
of the extreme right and left as well as to organizations with other 
viewpoints.^ (However, as discussed below, the SSS maintained files 
on over 8,500 individuals, and on many organizations that did not 
claim tax exempt status.) 

■7H.R. Kept. No. 91-413 (Part 1), 91st Cong., 1st Sess. .33 (1969) ; S. Kept. No. 91-552, 
9] St Cong., 1st Sess. 48 (1969). Also, the restrictions on lobbying by exempt organizations 
were recently considered by the House Ways and Means Committee in its deliberations on 
tax reform during the 93d Congress. 

» In 1969 the Service was responsible for administering firearms laws as well as the 
income tax laws. (This function was moved out of the IRS on July 1, 1972. when the 
Alcohol, Tobacco & Firearms Division became a division directly under the Treasury 
Department.) The considerations that go into determining whether information is relevant 
to the enforcement of firearms laws are quite different than the considerations involved 
in determining whether information is relevant for enforcing the income tax laws. 



II. SUMMARY 1 

Formation of Special Service Staff 

In early summer 1969 there was substantial interest in both the 
White House and in Congress for the Internal Eevenue Service to 
examine activist groups to see if they were meeting their tax respon- 
sibilities. There was also interest within the Service to act m this area. 

The interest of the White House in tax examinations of left wing 
tax exempt organizations apparently was conveyed to the Commis- 
sioner of Internal Revenue, Randolph Thrower, by Dr. Arthur Bums ^ 
(then Counselor to the President) and by Tom Charles Huston (then 
on the ^Vliite House staff) , at a meeting in the Yvliite House on June 16, 
1969. After the meeting, Mr. Thrower apparently told Roger V. Earth 
(then Assistant to the Commissioner) to get in touch with Mr. Huston. 
Mr. Huston sent a memorandum to Roger V. Earth on June 20, 
1969, repeating the interest conveyed to Mr. Thrower at the earlier 
meeting. Mr. Earth apparentlv replied by sending Mr. Huston a memo- 
randum on "Ideolosical Organizations" which had been prepared 
within the IRS for Mr. Earth on July 1, 1969, and a later m.emoran- 
dum describing the organizational meeting of the SSS. It also seems 
that this interest of the 'Wliite House was^communicated to some em- 
ployees of the Service outside the Commissioner's office. However, the 
people who were in the office of the Assistant Commissioner (Compli- 
ance) and who were directly responsible for setting up the SSS do 
not recall any such White House interest. 

The Permanent Subcommittee on Investigations of the Senate Com- 
mittee on Government Operations also indicated an interest in having 
the Service act in tliis area. In early 1969 the Subcommittee was pre- 
paring for general hearings on militant organizations. In the course 
of these preparations the Subcommittee staff had discussions with the 
IRS about IRS actions regarding militant organizations. Also, the 
Subcommittee held a hearing in executive session devoted to IRS 
actions concerning militant organizations, where only Revenue Serv- 
ice people testified. (This hearing occurred on June 25, 1969, five 
days after the date of Mr. Huston's memorandum to Mr. Earth, de-^ 
scribed above.) The staff understands that this was the only hearing 
the Subcommittee held during its general hearings on militant orga- 
nizations which was devoted solely to testimony by an executive 
agency with respect to its activities concerning such groups. At this 
hearing, the chairman of the Subcommittee stated his_ interest in 
having the Service act with respect to militant organizations, al- 

iThls section consists essentially of the same material that appears at the beglnnlnsr of 
each sncceedinj; section of this report under the heading Nummary. Therefore, the sum- 
mary material can be read in its entirety in this section, or the pertinent parts can be read 
separately in connection with each individual section. ,,,,,, x 

2 Dr. Burns has told the staff he has no recollection of meeting with Mr. Thrower to 
discuss this issue. 

(5) 



6 

though he also indicated he was not criticizing the Service for its 
prior activities. 

There also was activity within the Service regarding militant 
groups. In March 1969, Donald L. Bacon, then the Assistant Commis- 
sioner (Compliance) asked the field for information on 22 extremist 
oroanizations. (These were organizations in which the Permanent 
Subcommittee expressed an interest, but the Subcommittee had not 
asked for this information to be compiled by the IRS.) Also on July 1, 
1969, there was a presentation by an Alcohol, Tobacco and Firearms 
(AT&F) investigator on militant organizations to the staff of the 
Assistant Commissioner (Compliance) ; this probably also added to 
the concern of the Service. 

It appears that the recommendation to set up the SSS was made by 
Leon Green, the Deputy Assistant Commissioner (Compliance), with 
the concurrence of Mr. Bacon, the Assistant Commissioner (Compli- 
ance). It also appears that Mr. Green's recommendation was signifi- 
cantly influenced by_ his reaction to his appearance before the 
Permanent Subcommittee on Investigations at its June 25, 1969, 
hearing. 

Tlie gtaff has not found any evidence that anyone in the White 
House requested that the Service establish a special compliance or 
data gathering project dealing with extremist organizations. Mr. 
^^■^^^V"^-^^ ^^^- Bacon, who apparently made the decision to establish 
tlie SSS, told the staff that they do not recall any pressure from the" 
White House to set up such a project. Additionally, the staff did not 
find any evidence that such requests were made by anyone in the 
Congress. 

Nevertheless, the effect of White House and congressional interest 
(which occurred at essentially the same time) cannot be ignored. Be- 
cause of this interest, it seems clear that some action by the Service 
with respect to militant groups was inevitable. The Joint Committee 
staffbelieves these were decisions made by the Deputy Assistant Com- 
missioner and the Assistant Commissioner (Compliance) but prob- 
ably m large part because of the interest of the White House and the 
Permanent Subcommittee on Investigations of the Senate Committee 
on Government Operations. 

Development and termdnation of the /SSS 

The SSS was established in several organizational meetings held 
in the IRS during July, 1969. During this time, the initial SSS per- 
sonnel were chosen and the functions of the SSS were set out. The 
SSS Avas to "coordinate activities in all Compliance Divisions involv- 
ing ideological, militant, subversive, radical, and similar type organi- 
zations; to collect basic intelligence data; and to insure that the 
requirements of the Internal Revenue Code concerning such organiza- 
tions have been complied with." Also, some people associated with the 
SSS indicated that they believed the SSS was to play a role in con- 
trolling "an insidious threat to the internal security of this country." 

The people involved with the SSS had a difficult time determining 
precisely what organizations and individuals to focus on. It appears 
from the staff's examination that the day-to-day focus of the SSS was 
largely determined by information it received from other agencies, as 
the FBI and the Inter-Divisional Information Unit of the Justice 
Department. 



The SSS generally operated by receiving information from other 
investigative agencies and congressional committees, establishing tiles 
on organizations and individuals of interest, checking IRS records 
on file subjects, and referring cases to the field for audit or collection 
action. Also, the SSS provided information to the Exempt Organiza- 
tion Branch (Technical) with respect to organizations whose exempt 
status was in question. This method of operation was established by 
late 1969. (Each of these areas is described in detail in later sections 
of this report.) 

In 1972. after a visit to the SSS basement office by Commissioner 
Walters, the SSS was moved to a different location, was included in the 
Revenue Manual, and was discussed at a conference of the Commis- 
sioner, his Deputy and Assistants, and the Regional Commissioners. 
Also, automation of the SSS files was plamied, but was never 
implemented. 

In May 1973 (one day after he was sworn in) , Commissioner Donald 
C. Alexander met with top IRS personnel with respect to the SSS and 
directed that the SSS actions were to relate only to tax resisters. This 
was reemphasized in a second meeting held at the end of June 1073. 
In early August 1973. the Commissioner learned of National Office 
responsibility for an IRS memorandum relating to the SSS published 
in Time magazine. The Commissioner felt that this memorandum de- 
scribed activities that were "antithetical to the proper conduct of . . . 
tax administration" and he announced (on August 9, 1973) that the 
SSS would be disbanded. 

Between August 9, 1973 and December 20, 1973 the SSS files were 
reviewed by IRS personnel to determine if any files had audit or 
collection potential. However, except for 230 cases relating primarily 
to war tax resisters, no field referrals were made from SSS files after 
August 9, 1973. 

The Commissioner has testified before the Congress that when the 
various investigations o,f the SSS are completed, he will seek pt^rmis- 
sion to destroy all the SSS files. 

Special Service Staff Files 

The SSS began with the names of 77 organizations and by the time 
it was disbanded in 1973 there was a total of 11,458 SSS files on 8,585 
individuals and 2,873 organizations. The subjects of these files in- 
cluded organizations and individuals with widely varying points of 
view, from all parts of the country and from many vocational and 
economic groups. 

Based on a random sample of the files examined by the staff, ap- 
proximately 41 percent of the SSS files are on Black (and ethnic) or- 
ganizations associated with violence, confrontations and civil disturb- 
ances (as well as some not associated with such activities) and their 
leaders, employees, and members. Approximately 15 percent of the 
SSS files are on what are generally considered to be White "right- 
wing extremist" and "racist" organizations advocating the use of force 
and violence. Approximately 18 percent of the files are on anti-war 
organizations and their leaders, employees and members. Approxi- 
mately 11 percent of the files are on "new left" radical groups and 
their leaders and members. There are also a number of files on "liberal 
establishment" organizations such as church groups, etc. 



8 

There appears to have been no clearly defined criteria for the SSS 
to use in selecting a file subject. Instead, it appears that, for the most 
part, files were established based on the source material available to the 
SSS. The piimary sources of names for the SSS files were the Depart- 
ment of Justice civil disturbance lists and the FBI reports sent to the 
SSS. The SSS received more than 11,000 FBI reports in four years.At 
times, particularly in the early days of the SSS, a significant portion 
of time was used to cope with (and set up files based on) FBI reports. 

The Department of Justice (through FBI reports and the civil 
disturbance lists) appears to have provided over half of the subjects 
for the SSS files. Other sources included Congressional committees (3 
percent), the IRS (11 percent), and books and publications (12 
percent) . The SSS also received information from an informant in the 
Washington, D.C., area. 

The SSS files vary considerably in size and contents. Many are one- 
half inch to 1 inch thick (in 81^ by 11 inch manila folders) and consist 
largely of FBI reports. The files also include SSS worksheets, lES 
master file computer printouts, newspaper clippings and miscellaneous 
information. The FBI reports often contain information on specific 
meetings or incidents involving an individual or organization; they 
also often contain background and biographical information on in- 
dividuals. The FBI reports (which furnish the bulk of the SSS files) 
-contain little information directly relevant to the administration of 
the tax laws, although they sometimes include information on em.- 
ployment and assets (such as vehicles and firearms). In a few cases 
the FBI reports include information on specific financial transactions. 

Coordmation ivitli other government units 

The SSS received information from a number of other Federal 
agencies, from congressional committees, and from some State and 
local agencies. As described in the section on Special Service Stafl^ files, 
this information was ysed by the SSS as a source for establishing 
files and to augment previously established files. 

INiany of the SSS contacts with other agencies apparently were 
initially made on an informal basis by two SSS employees who had 
previously established their own associations in the intelligence com- 
munity. (One of these employees was detailed to the SSS from the 
Alcohol, Tobacco and Firearms Division of the Internal Revenue 
Service.^ The other employee had been detailed from the Service's 
Intelligence Division.) Formal contact also was established with other 
agencies; however the initial informal contact of these employees 
seems to have been an important element in the SSS coordination with 
other agencies and Congressional committees. 

The most important sources of information for the SSS were the 
FBI and the Inter-Divisional Information Unit of the Department of 
Justice. Also, the Social Security Administration was of substantial 
impoitance (although, of course, the SSS did not receive "intelligence- 
type" information from Social Security). The Departments of Armv, 
Navy, and Air Force also provided the SSS with information. Other 
1^ cderal and State agencies also aided the SSS, although to a much 
smaller extent. 



» On July 1, 1072, AT&F became a separate Treasury bureau. 



9 

With respect to congressional committees, the House Internal 
Security Committee' provided a signiiicant amount of information to 
the SSS. The Subcommittee on Internal Security of the Senate Judi- 
ciary Committee and the Permanent Subcommittee on Investigations 
of the Senate Government Operations Committee also provided some 
information to the SSS. 

IMost of this coordination with other government units involved the 
SSS receiving information. In addition, some information was pro- 
vided by the SSS. to other government agencies and to congressional 
committees. 

Gommimications With the ^¥hlte House. — There is some evidence 
that, after the formation of the SSS, there were inquiries to Roger V. 
Barth (formerly Assistant to the Commissioner) from the White 
House regarding specific organizations. Additionally, Mr. Barth made 
some inquiries regarding specific organizations to the office of the 
Assistant Commissioner (Compliance) which were answered by the 
SSS. However, the staff has not found any evidence that ties these 
, White House inquiries on specific organizations to the inquiries from 
3,Ir. Barth that went to the SSS. In one case, information on contrib- 
utors to a "left-wing extremist" organization went to the FBI from the 
IRS, and then from the FBI to the White House. The SSS was in- 
volved in this transfer of information to the White House. 

In September 1970, Randolph Thrower, then Commissioner of Inter- 
nal Revenue, reported to the White House in response to an inquiry 
from Tom Charles Huston regarding the activities of the SSS in gen- 
eral. This report did not deal with any specific individuals or organiza- 
tions. Mr. Huston has told the staff "that he forwarded this repoi't to 
Mr. H. R. Ilaldeman, and thereafter he heard nothing from Mr. Hal- 
deman on the issue and did nothing more with respect to this activitv 
of the IRS. ^ 

Mr. Huston also has told the staff that he not talk with people in 
other executive agencies, such as the Department of Justice (or the 
FBI) to encourage them to help the IRS with respect to the SSS. Ad- 
ditionally, Mr. Huston has told the staff that he did not talk with the 
Internal Revenue Service about the SSS (or about the Service, in 
general) in regard to the Report of the Interagency Committee on 
Intelligence (the "Huston Plan"). 

Field refer vols 

The SSS referred to the field for audit and collection activity ^ a 
total of -225 cases concerning individuals and organizations in the SSS 
files. (If husband and wife are counted separately, the referrals total 
234. If additional known "communications" with the field are added, 
the total IS 250.) The staff examined field office and SSS files for 149 of 
these cases, or approximately 66 percent of the total (225) number of 
cases referred to the field. As between individuals and organizations, 
the staff examined these files for 93 individuals and 56 organizations. 
The staff generally did not examine the complete field fileson cases in 
current collection or audit action, to avoid interfering with such action. 

It appears that SSS personnel would check centrally maintained 
IRS master files on a relatively systematic basis to see if individuals 
or organizations in the SSS files had filed required tax returns and 
(if nled) whether the returns indicated that an audit examination 

*In ^'eneral niidit activity recommended by the SSS involved examination of retnrnq 
already filed. Collection activity involved securing unfiled returns retuins 



10 

was appropriate. However, in the early stages, it appears that the 
SSS focused on one Black militant group (and individuals associated 
with the group) and also on one extremist left wing group (and in- 
dividuals associated with that group). In at least one later situation, 
it appears that one group of organizations and associated individuals 
(underground newspapers and their editors) were given special atten- 
tion by the SSS. 

It appears that generally field referrals were n^ made by the SSS 
without some consideration of tax-related information, and that a field 
referral generally would not be made unless there was some reason to 
believe that there might be a failure to comply with the tax laws. 
However, in some of the cases reviewed by the staff, the tax deficiency 
potential appeared to be marginal, based on the information contained 
in the file. Also, in some "national security cases" it appears that the 
SSS may have made field referrals without checking an individual's 
wage (or other financial) records to determine if there was some evi- 
dence that a person who had not filed a return had taxable income.^ 
Also, in many cases a summary of non-tax background information 
from FBI reports was sent to the field, including an individual's activ- 
ities such as speeches given, attendance at meetings, or demonstrations, 
etc. The background information also would include the individual's 
affiliation with Black militant groups, anti-war groups, or similar 
organizations. 

SSS field referrals were made in the form of a transmittal memo- 
randum with an attached information sheet and a recommended ac- 
tion. Initially (from August 1969, to June 1970) the transmittal 
memorandum indicated the field was to promptly take the action rec- 
ommended by the SSS. Later, the form of the transmittal memo- 
randum was changed, indicating that the field should take the action 
it deemed appropriate. The field objected to the recommended action 
only in a few cases. The field generally would take action on and 
close a collection case in about six months from the date of referral ; 
an audit case could take somewhat longer. 

The reaction by the field may have been affected because of the re- 
quest by the SSS for a status report. Initially, the field reported to 
the SSS using sensitive case reporting procedures under which a report 
was required whenever there was a significant development. In 
June, 1972, this procedure was terminated and the field was instructed 
to inform the SSS of the results of any investigation. Then, in 
April 1973, quarterly status reports were required to be submitted to 
the SSS for each case initiated by it. 

In collection cases referred by the SSS, the field generally would 
attempt to contact the taxpayer and arrange for the filing of any 
required returns. In collection cases where no return was required, 
during at least one year the SSS recommended that the field secure a 
signed, witnessed statement that no return was required. This type 
statement was not generally required by the IRS. In audit cases re- 
ferred by the SSS there would be an office audit or a field audit, as 
appropriate. In a number of collection cases referred by the SSS 
the field determined that the individual was not required to file a 
return. Similarly, in some audit cases an audit was not conducted 

'' AdditionaUy, as described below, field referrals in "war tax resister" cases were made 
on a different basis than other referrals. 



11 

because, after survey of the return, the field decided no revenue 
potential was apparent. 

In one case examined by the staff, the fiekl objected to the recom- 
mended action because the District Director felt the recommendation 
discriminated against taxpayers associated with Black militant orga- 
nizations. In another case, the field refused to follow the recommended 
action because an audit would not be required of a similar community 
fund-raising organization and the noncompliance potential was mini- 
mal. However, refusal to follow an SSS recommended action was un- 
usual. 

On the other hand, in one case examined by the staff, the revenue 
agent auditing the organization maintained frequent contact with 
the SSS, and the SSS provided information to the agent during the 
course of his examination of the organization. (This audit apparently 
began before the SSS field referral.) However, this extensive degree 
of communication directly with the field agent was not common. In 
most cases the only communication after a referral from the SSS to 
the field was one or more status reports from the field to the SSS and 
inquiries by the SSS to the field about the status of a case, where there 
had not been a status report for 3 to 6 months. 

At the time it Avas discontinued, the SSS had established files on 
8,585 individuals and 2,873 organizations. Approximately 800 of these 
cases were classified as "war tax resister" cases. According to infor- 
mation furnished the staff by the Internal Revenue Service, the SSS 
requested searches of Internal Revenue Service individual and busi- 
ness master files with respect to the filing status of 3,658 individuals 
and 832 organizations in the SSS files. In addition, the SSS conducted 
searches of the Internal Revenue Service exempt organization master 
file with respect to 437 organizations. 

The SSS made field referrals on 136 cases involving individuals 
(145 if a husband and wife were counted separately) and 89 organiza- 
tions. Of the 225 total referrals made by the SSS, 176 initially were 
collection cases and 49 initially were audit cases ; however, there were 
later field transfers from collection to audit. Categorizing the individ- 
uals who were the subject of field referrals, 63 (of 136) appear to be 
primarily affiliated with Black militant groups. The next largest affilia- 
tion was 24 individuals primarily affiliated with anti-war groups. Ad- 
ditionally, of the field referrals there appeared to be the following 
primary affiliations: 13 individuals affiliated with student activist 
groups, 10 affiliated with civil rights groups, 10 affiliated with left- 
wing groups, 7 affiliated with right-wing groups, and 9 affiliated with 
other types of groups. 

With respect to organizations, 57 (of 89) field referrals related to 
organizations which were considered by SSS as either left-wing (23), 
anti-war (19), or underground newspaper organizations (15). The re- 
maining referrals were considered by the SSS to be of the following 
types: 6 Black militant organizations, 3 welfare and antipoverty 
groups, 3 religious organizations, and 20 organizations which were 
either civic, educational, social, or other types. 

Total net assessments against individuals were approximately $580,- 
000, but approximately $501,000 of that amount was attributable to 
four cases. Also, in 89 (of 136 total) cases, either no return was se- 

-52-219 — 75 -2 



12 

cured, a refund was paid, or no tax was due. For organizations, the 
net revenue assessed was approximately $82,000, and the Service re- 
voked its determination of exempt status in one field referral case. 
(For other actions involving exempt organizations see the section on 
coordination with the exempt organizations branch.) The staff under- 
stands that less than $100,000 of the total assessments has been col- 
lected, but that a significant portion of the amomits assessed is still in 
controversy. 

The staff also reviewed SSS field referral cases for any follow-up 
activity by the field. In nine cases reviewed by the staff there was fol- 
low-up activity where the SSS-initiated action had not been closed be- 
fore the returns for the later years were required to be filed. In six 
cases (some of which were among the nine just noted) , there was later 
field action based on routine computer selection. The staff' did not fuid 
any evidence that an SSS referral resulted in a taxpayer being placed 
on a list for future audit or collection action solely because the SSS 
referral had been made. 

Generally, it appears that the SSS did not refer cases for field 
action without some analysis to determine a tax basis for the referral. 
The number of requests for Social Security data, master file checks, 
and requests for copies of returns tend to indicate that an effort was 
made to obtain tax information to form tlie basis for a referral to 
the field. Moreover, the small number of cases actually referred to 
the field in relation to the number of files established tends to indicate 
that the SSS generally screened cases before making a referral to the 
field. In the course of its revievv^ of the SSS files, tlie staff found that 
in some cases the tax-related information contained in the referral 
attachment might be considered to be insignificant. (Howev^er, the 
staff' realizes that the evaluation of the sigiiificance of much of the 
material involves the exercise of individual judgTaent. In this light, 
the staff did not review any referral wliich was completely devoid of 
tax-related information,' except for one "national security case".) 

The unusual features of the SSS field referi'als were (1) requiring 
an individual who was not required to file a return to sign a statement 
to that effect, (2) the_ direction to the field to take a specific action 
(hi the initial transmittals), (3) the inclusion of background mate- 
rial which had a dubious relationship to tax liability, and (4) the 
requirement that sensitive case reporting or other progress reports 
be used in all cases. As a result of its review of the files, the staff con- 
cluded that the field generally did not treat taxpayers referred by the 
SSS any harsher than it would have in a routine case, although in a 
few cases the field examination may have been excessive in attention 
to detail. 

With respect to the priority given to the SSS referrals by the field, 
it appears that SSS personnel initially believed that their case refer- 
rals would be given priority treatment by the field. However, the 
documents reviewed by the staff indicate that SSS persomiel later be- 
came concerned that these cases were being handled in a routine man- 
ner by the field. From its review of the SSS files and related field office 
files, the staff^has concluded that, except in isolated cases, the field 
handled the SSS refenuls in a routine manner. 

Field referrals on war tax resisters 

In 1970 the SSS began to take account of what it called "war tax 
resisters." A "war tax resister" generally was defined as an individual 



13 

or organization that refused to pay Federal income or excise taxes as 
a protest against the United States' participation in the Vietnam war 
or who encouraged others to refuse to pay taxes. (However, the staff 
reviewed several cases included by the SSS in the war tax resister 
group of cases where noncompliance occurred because of a tax protest 
that was not directed toward the Vietnam war.) 

The SSS classified approximately 800 files as 'Svar tax resisters," 
and it referred to the field 550 of these cases. These referrals occurred 
in two groups, the first a group of 320 cases during March-April 1972, 
and the second a group of 230 cases during December 1973, after the 
SSS had been terminated. Unlike the other field referrals ^discussed 
above) where the SSS recommended that the field take specific action, 
the tax resister referrals were sent out for the information of the field 
offices and for whatever action they "deemed appropriate." 

Coordination with Exempt Organization Branch 

Under a written operating procedure, certain exempt organization 
cases handled by the l^ational Office were coordinated with the SSS. 
If a case involved a so-called "activist organization," the case was 
classified as an SSS case by the Exempt Organizations Branch (Tech- 
nical) (the E-0 Branch) and referred to the SSS in order that they 
might have an opportunity to see open case files pertaining to these 
organizations. The SSS would, in turn, flag those cases in which they 
were interested, request additional information ,f rom various agencies, 
and forward this information to the E-0 Branch for its consideration 
in disposing of the case. Much of this information concerned officers 
or other individuals associated with the organizations seeking 
exemption. 

During the period that the SSS was in existence, approximately 153 
cases were referred to it by the E-0 Branch. The SSS expressed an in- 
terest in 80 of these cases. In several cases, the SSS went beyond 
merely furnishing information to the E-0 Branch and recommended 
a particular disposition of the case. 

Although the SSS attempted to influence a decision of the E-0 
Branch in several cases in which they had expressed an interest, the 
staff, after anab/zing the cases, found that the SSS played little, if 
any, part in the disposition of the substantive issues in the case. At 
an early stage in the operations of the SSS. it was established that the 
SSS was not to have a role in the determination of exempt status 
under the tax law. However, confidential information submitted by 
the SSS was used by the E-0 Branch in several cases as a basis for 
requesting additional information from the organization seeking ex- 
emption. In addition, this information was considered in determining 
whether the organization's operations should be audited in the near 
future. 

Finally, a review of the files showed that coordination with the 
SSS resulted in a delay in the rulings process. In many cases in which 
the SSS expressed an interest, the disposition of the case was delayed 
for a period of approximately one to three months, primarily as a 
result of coordination with the SSS. 

Previous '"''Ideological Organizations'''' Project 

In the fall of 1961 the Internal Revenue Service began an examina- 
tion of extremist right-wing organizations. By spring 1962 the pro- 
gram included both left-wing and right-wing organizations: under 



14 

this pro£yram. a total of 22 organizations were examined, 12 right-wing 
and 10 left- wing: This program apparently was stimulated by a public- 
statement of President John F. Kennedy and also a suggestion by 
Attorney General Robert F. Kennedy. The first-phase program was 
substantially completed by mid-1963. 

In the summer of 1968 the Service began another program of exam- 
ining extremist organizations ; in some respects, however, this was an 
outgrowth and a continuation of the first program. The second pro- 
gram apparently was stimulated by White House communications to 
the Internal Revenue Service, including a telephone call from Presi- 
dent Kennedy to Conunissioner Mortimer M. Caplin. This program 
involved 24 (later 25) organizations. While the program originally 
was to be balanced between both right- and left-wing organizations, in 
practice it appears that 19 of the 25 organizations examined were right- 
wing. (This characterization was made by the IRS.) 

Under the first-phase program, the National Office directed the field 
to audit the organizations in question, but there was little involvement 
of the National Office in the audit process itself. In the second-phase 
program the field, nt the direction of the National Office, collected in- 
formation for the National Office. The National Office then analyzed 
these facts to determine if each organization in question should be 
treated as tax-exempt. This project included a study of organizations 
that might be engaged in activities that could raise questions aljout 
their exempt status {e.cf.. whether they properly could be treated as 
tax exempt "educationar- organizations). 

Thp staff has found no evidence that the White House or the Attor- 
ney General supplied names of organizations to be audited. How- 
ever, a member of the White House staff reviewed the list of organiza- 
tions proposed for the second-phase audit program and suggested that 
two organizations be deleted. These organizations were deleted from 
the list for audit, although one was subsequently added back. Addi- 
tionally, it was reported that the Attorney General suggested that the 
IRS move its investigation of one particular organization along in 
rapid fashion. 

The first-phase program was largely completed by July 1963, (In 
some cases, the examination of an organization was not complete and it 
was made part of the second-phase program.) By this time, it appears 
that the IRS had recommended revocation of the exempt status of two 
right wing organizations and had notified another right wing orga- 
nization that its exempt status would be revoked. Also, there were ad- 
justments on audit with respect to two non-exempt right wing 
organizations, and there had been a disallowance of doductions in one 
case for contributions to a non-exempt organization. The staff did not 
find any information that the IRS made any adjustments on audit, or 
revocation of exempt status, with respect to the left wing organizations 
in the first phase program. 

The second-phase program was largely underway by the end of 
1963. For the most part, it was completed by 1966. By"l967, the exempt 
status of 4 organizations examined under" the program had been re- 
volced ; of these organizations, 3 were right-wing and 1 Avas left-winff. 
(In the case of one of tlie right wing organizations, revocation had 
been recommcMided in tlie first ]~»h;ise program.) 



III. FORMATION OF SPECIAL SERVICE STAFF 

Summary 

In early summer 1969 there was substantial interest in both the White 
House and in Congress for the Internal Revenue Service to examine 
activist groups to see if they were meeting their tax responsibilities. 
There was also interest within the Service to act in this area. 

TliG interest of the White House in tax examinations of left wing 
tax exempt organizations apparently was conveyed to the Commis- 
sioner of Internal Revenue, Randolph Thrower, by Dr. Arthur Burns ^ 
(then Counselor to the President) and by Tom Charles Huston (then 
on the AVliite House staff) , at a meeting in the White House on June 16, 
1969. After the meeting, Mr. Thrower apparently told Mr. Barth to 
get in touch with Mr. Huston. Mr. Huston sent a memorandum to 
Roger V. Barth (then Assistant to the Commissioner) on June 20, 
1969, repeating the interest conveyed to Mr. Thrower at the earlier 
meeting. Mr. Barth apparently replied by sending Mr. Huston a memo- 
randum on "Ideological Organizations" which had been prepared 
within the IRS for Mr. Barth on July 1, 1969. and a later memoran- 
dum describing tlie organizational meeting of the SSS. It also seems 
that this interest of the White House was communicated to some em- 
ployees of the Service outside the Commissioner's office. However, the 
people who were in the office of the Assista,nt Commissioner (Compli- 
ance) and who were directly responsible for setting up the SSS do not 
recall any such White House interest. 

The Permanent Subcommittee on Investigations of the Senate 
Committee on Government Operations also indicated an interest 
in having the Service act in this area. In early 1969 the Subcommittee 
was preparing for general hearings on militant organizations. In the 
course of these preparations the Subcommittee staff had discussions 
with the IRS about IRS actions regarding militant organizations. 
Also, the Subcommittee held a hearing in executive session devoted to 
IRS actions concerning militant organizations, where only Revenue 
Service people testified. (This hearing occurred on June 25, 1969, five 
days after the date of Mr. Huston's memorandum to Mr. Barth, de- 
scribed above.) The staff understands that this was the only hearing 
the Subcommittee held during its general hearings on militant orga- 
nizations which was devoted solely to testimony by an executive agency 
with respect to its activities concerning such groups. At this hearing, 
the chairman of the Subcommittee stated his interest in having the 
Service act with respect to militant organizations although he also 
indicated he was not criticizing the Service for its prior activities. 

' Dr. Burns has told the staff he has no recollection of meeting with Mr. Thrower to 
discuss this issue. 

(15) 



16 

There also was activity within the Service regarding militant 
groups. In March 1969, Donald Jj. Bacon, then the Assistant Commis- 
sioner (Compliance) asked the field for information on 22 extremist 
organizations. (These were organizations in which the Permanent 
Subcommittee expressed an interest, but the Subcommittee had not 
asked for this information to be compiled by the IRS. Also on July 1, 
1969, there was a presentation by an Alcohol, Tobacco and Firearms 
(AT&F) investigator on militant organizations to the staff of the As- 
sistant Commissioner (Compliance) ; this probably also added to the 
concern of the Service. 

It appears that the recommendation to set up the SSS was made by 
Leon Green, the Deputy Assistant Commissioner (Compliance), with 
the concurrence of Mr. Bacon, the Assistant Commissioner (Compli- 
ance). It also appears that Mr. Green's recommendation was sigiiifi- 
icantly influenced by his reaction to his appearance before the Perma- 
nent Subcommittee on Investigations as its June 25, 1968, hearing. 

The staff has found no evidence that anyone in the White House 
requested that the Service establish a special compliance or data 
gathering project dealing with extremist organizations. Mr. Green 
and Mr. Bacon, Avho apparently made the decision to establish the 
SSS, told the staff that they do not recall any pressure from the White 
House to set up such a project. Additionally, the staff did not find any 
evidence that such requests were made by anyone in the Congress. 

Nevertheless, the effect of AYhite House and Congressional interest 
(which occurred at essentially the same time) cannot be ignored. Be- 
cause^ of this interest, it seems clear that some action by the Service 
with respect to militant groups was inevitable. The Joint Committee 
staff believes these were decisions made by the Deputy Assistant Com- 
missioner and the Assistant Commissioner (Compliance) but probably 
in large part because of the interest of the "Wliite House and the Per- 
manent Subcomjnittee on Investigations of the Senate Committee on 
Government Operations. 

Bachground 

Questions have been raised as to the extent to which the SSS may 
have been established because of interest expressed by the White House 
or the Congress. 

_ On July 2, 1969, the first recorded meeting dealing with the orga- 
nization t]\at ultimatelv became the SSS was held within the Internal 
Revenue Service. An IRS memo of July 18, 1969, described the func- 
tion of i\\^ SSS to "coordinate activities in all Compliance Divisions 
involving ideological, militant, and subversive, radical and similar 
type organizations: to collect basic intelligence data; and to insure 
that the requirements of the Internal Revenue Code concerning such 
organizations have been complied with." 

Both the White House and the Congress expressed an interest to the 
TRS in activist groups before July 2," 1969. This section of the report 
describes this interest. 

White House 

Recommevd atio'T^''^ to Presklcnt Nixon. — In his interview with the 
staff. Torn Charles Huston (formerlv a member of the White House 
staff) said that in the first lialf of 1969 an informal jrroup of "con- 
servative" "White House staffers (called by some the "Committee of 
Six") occasionally met at the request of President Nixon to make pol- 



17 

icy recommendations on what the administration should be doing. Mr. 
Huston participated in this group. 

Mr. Huston said in his interview that among the recommendations 
made to President Nixon in the first half of 1969 was that the section 
of the Internal Revenue Service responsible for tax exempt organiza- 
tions should look at exempt left-wing organizations to determine if 
they were complying with the tax laws. Mr. Huston told the staff that 
this recommendation was made in a memorandum written by Patrick 
Buchanan, also a former member of the White House staff. (The staff 
has not been able to find a copy of the memorandum containing this 
recommendation.- ) 

Mr. Huston indicated to the staff that this recommendation was 
stimulated by information which had been given to the Ways and 
Means Committee during its hearings on the Tax Reform Act of 1969 
concerning Ford Foundation grants to former staff members of Sen- 
ator Robert F. Kennedy after he was assassinated.^ 

Mr. Huston also indicated to the staff that the recommendation was 
stimulated by information he had received about one particular orga- 
nization, setting out facts that apparently would have prevented this 
organization from being tax-exempt under the Internal Revenue Code. 

Mr. Pluston said in his interview that President Nixon agreed with 
this recommendation that the IRS should look at the tax compliance 
of left-wing exempt organizations. (In a memorandum of September 
21, 1970, to Mr. H. R. Haldeman, Mr. Huston said that "Nearly 
18 months ago, the President indicated a desire for the IRS to move 
against leftist organizations taking advantage of tax shelters.") Mr. 
Huston said that Dr. Arthur A. Burns (at that time, Counselor to the 
President) was then asked to speak with the Commissioner of Internal 
Revenue about this problem ; however, Mr. Huston does not loiow who 
asked Dr. Bums to do this. 

In his staff interview, Mr. Buchanan said that among the areas 
discussed by the Committee of Six was the problem of organizations 
abusing their tax-exempt status by engaging in political activities that 
opposed the administration. Mr. Buchanan said that he could not 
snecifically recall any memorandum to President Nixon about this par- 
ticular topic, but that if the question was discussed by the Committee 
of Six, it would have been included in a memorandum to President 
Nixon. 

Mr. Buchanan told the staff that he may well have suggested in a 
Committee of Six memorandum to President Nixon that the use of 
tax-exempt money for political purposes be looked into, that this was 
a scandal. Mr. Buchanan said that he believes there was a "go-ahead" 
to communicate with Dr. Arthur Burns (then President Nixon's top 
domestic advisor) , and through him to the Secretary of the Treasury 
on this question. 

Meeting of^ June 16, 1969.— On June 16, 1969. Randolph Thrower 
(then Commissioner of Internal Revenue) met with Dr. Burns and 

^Thp staff has asked the White House to furnish a copy of this memorandum. The staff 
was informed hv Philin W. Biichen, Counsel to the President, that "the Order of the 
United States District Court for the District of Columbia, entered October 21, 1974, as 
amended, in Nixon v. Sampson, et al., Civil Action No. 74-1,518 requires that Mr. Nixon or 
his counsel cojisent to the production of any of the 'Presidential materials of the Nixon 
Administration.' Mr. Herbert ,1. Miller, .Tr., counsel for Mr. Nixon, has refused to consent 
to any senrch for or production of the Items numbered two and three in your letter." (Item 
three in the staff's letter is the memorandum in question.) 

^ Henrinns on the Subject of TaT Reform Before the Conim. on Ways and Means, 91st 
Cong., 1st Sess., pt. 1, at 372-376 (1969). 



18 

Mr. Huston in the Executive Office Building. This meeting is con- 
firmed by Mr. Thrower's notes taken at the meeting and his memo- 
randum of the meeting dated June 16, 1969.* It was also confirmed by 
Mr. Thrower and Mr. Huston in their staff interviews. Mr. Thrower's 
calendar and the date book kept by Dr. Burns' secretary also show 
entries for this meeting. In addition, the records of the Executive Pro- 
tection Service show that Mr. Thrower entered the Executive Office 
Building on June 16, 1969, for a meeting with Dr. Burns at the 
scheduled time of the meeting. 

In his staff interview, Dr. Burns said he has no recollection of this 
meeting with Mr. Thrower. Dr. Burns said he did recall several other 
conversations with Mr. Thrower dealing with exempt organizations 
in general (but not with left wing groups) and the membership of a 
high level committee to advise the IRS on exempt organizations. Dr. 
Burns has reviewed Mr. Thrower's memorandum of the June 16, 1969, 
meeting, and has advised the staff that its contents do not stir any 
recollection of the June 16, 1969 meeting.^ 

Mr. Huston said in his interview that Patrick Buchanan also 
attended the meeting of June 16, 1969. Mr. Thrower's notes and mem- 
orandum of that meeting do not indicate that Mr. Buchanan attended. 
Mr. Buchanan said in his interview that he did not recall attending a 
meeting with Mr. Thrower about exempt organizations and that he did 
not believe he has ever met Mr, Thrower. However, Mr. Buchanan said 
that he is almost certain that the TVliite House staff made contact 
with the IRS regarding the exempt organization question. 

Mr. Thrower's Memorandum to the File of June 16, 1969. concern- 
ing his meeting with Dr. Burns of that date states that Dr. Burns 
was "initially interested principally in expressing to me the concern 
of the President about enforcement in the area of exempt organiza- 
tions. The President had expressed to him great concern over the 
fact that tax-exempt funds may be supporting activist groups engaged 
in stimulating riots both on the campus and within our inner cities." 

Mr. Thrower's memorandum of June 16, 1969 also states that Dr. 
Burns called in Mr. Huston who cited a number of instances where 
he thought that a tax exemption was being abused or where he thought 
the Service was not applying its rules equallv to organizations of the 
right and of the left. In his staff interview, Mr. Huston said that at 
this meeting he discussed several specific examples of tax-exempt 
organizations whose tax compliance might be investigated.^ (One 



^ In his interview, Mr. Thrower said he believes that this memorandum was written quite 
soon after the meeting. This memorandum is reprinted in the appendix to this section. 

^ Dr. Burns advised the staff that he does recall an encounter with Mr. Huston in the cor- 
ridor of the Old Executive Office Bundinp In which he believes that Mr. Huston touched 
on the sub.iect of "activist" or "radical" organizations that he felt might Improperly be 
trented ns tax-pxpuipf. D^v R"rns also advised the i=taff that in this encounter Mr. Huston 
may have expressed the President's concern about this issue. 

•Mr. Huston told the staff thnt at this meeting he also raised a question about the 
enualitv of treatment by the Pervice n'ith resnect to some tax-expnipt rurnl elect'-'ficat'on 
rooi->p-'i*-ives ""fl a conaprvn+ion grrinn sincp the exp'upt coonerativps werp pngnp-'^ri in the 
same type of political activities as the conservation group, which had recently lost its tax- 
eipnipt stntus. Mr. Thrower's memorandum also noted that this question had been raised. 
This nupstion was also raised in the memorandum of June 20. 1969, from Mr. Huston to 
Mr. Barth. described below. Additionally, on June 80, 19fiQ, Mr. Thrower sent a letter to 
Dr. Arthur Burns with a copy to Mr. Huston with respect to this question concerning the 
tax treatment of the conservation group and the rural electrification cooperatives. The 
first paragraph of this letter says that It Is in response to the comments made by Mr. 
Hi'sfnn if- the mpptincr of Junp 1(j, 1969, and the comments In Mr. Huston's memorandum 
of June 20. 1969, to Roger V. Barth. 

This exchange Involving Mr. Huston. Mr. Thrower, and Mr. Barth also substantiates the 
occurrence of the meeting of June 16, 1969, and is indpnendent evidence substantiating 
both Mr. Huston's recollection of the meetlnsr. and the '^■^ cription of the meeting contained 
in Mr. Thrower's memorandum to the file of June 16, 1969. 



organization named in Mr. Thrower's memorandum as t)eing an 
"activist" organization that was of specific concern to Mr, Huston also 
was noted by Mr. Huston in his interview with the staff, as an example 
that he had used at this meeting. ) 

Mr. Thrower's memorandum of June 16, 1969, additionally states 
that he would like "Koger Barth to get in touch with Mr. Huston 
and advise him that we w^ould be pleased to receive and take into 
account information of the sort that he referred to in connection 
with a number of organizations and, in particular, the [taxpayer] ^". 
In his staff interview, Koger V. Barth (then Assistant to Commis- 
sioner Thrower) said that he did not recall talking with Mr. Thrower 
about this meeting at the Wliite House with Dr. Burns and Mr. 
Huston, nor did he recall Mr. Thrower's memorandum of June 16, 
1969 (which indicates that Mr. Barth was to receive a copy). 

Mr. Thrower said in his staff interview that he did not recall tell- 
ing Mr. Barth anything about his meeting in the White House (other 
than what is in his memorandum of June 16, 1969, of the meeting) . 
Mr. Thrower said that he may have talked to Donald Bacon (then 
Assistant Commissioner, Compliance) about the meeting to provide 
further stimulus to the exempt organization program. (However, Mr. 
Thrower said that he did not talk with anyone in the office of the As- 
sistant Commissioner (Compliance) about setting up an organization 
as the vSSS.) Mr. Bacon told the staff that he did not recall anv specific 
White House interest in auditing exempt organizations. Mr. Bacon 
also told the staff that he does not recall Mr. Thrower (or Mr. Barth) 
su.o-gesting durinir 1969 an audit of the specific organizations in 
which the White House had expressed an interest. 

MemoTanduTn of June W, 1969. — On June 20, 1969, Mr. Huston 
sent a memorandum to Mr. Barth which dealt with the same issues 
raised by Dr. Burns and Mr. Huston at their meeting with Mr. 
Thrower on June 16, 1969.® In this memorandum, Mr. Huston said "I 
would recommend that the Tax-Exempt Organizations section take a 
close look at the activities of the [taxpayer] ." ^ This memorandum also 
stated that "I have advised the President that Mr. Thrower is aware 
of his personal interest in this subject. The President has indicated 
that he is anxious to see some positive action taken against those or- 
ganizations which are violating existing regulations, and I have as- 
sured him that I will keep him advised of the efforts that are presently 
underway." ^^ Additionally, in the memorandum Mr. Huston said "I 

''The stnff has examined the Internal Revenue Service field files for this orfranlzation. 
The oreanizatlon was audited in 1968 and asrain In lOfifl. The Iflfifi audit was becrun within 
two weeks after Mr. Thrower's meetinc: in the White House, and it appears it was besrun at 
the direction of the National Office. The staff has not been able to determine the reason 
whv the 1969 audit was begun. While the audit may have been initiated because of a White 
House suggestion. It also mav have been initiated because of a previously established 
audit plan? The file Indicates that in September 1968 the IRS hnd determined thit *^he 
organization should be periodically audited because it was engaged in legislitive activities 
that are limited by sec. 501(c) (3) of the Internal Revenue Code. (Additionally, there had 
been a number of congressionnl inquiries around this time with respect to this orsraniza- 
tion.> The staff believes that the audit of this organization begun in 1969 should be 
reviewed by the Inspection Division of the Internal Revenue Service. 

'This memorandum is rpprinted in the anpendix to this section. 

9 The staff has examined the IRS field files on this organization. The organization was 
audited in 1967. and this audit resulted in a "no change" report. The organization was 
audited again after 1970. Apparently, an audit was not begun in 1969 after the White 
House recommendation. 

1" However Mr. Huston has told the staff that he did not talk with President Nixon 
(nor Mr. H. R. Haldeman) about his .Tune 1969 meeting with Mr. Thrower, and that the 
next contact he had with Mr. Haldeman about this issue was his September 21. 1970 
memorandum about a report on the SSS that he received from Mr. Thrower. (See section 
VI.) 



20 

would appreciate it if you would keep me advised of what steps are 
being taken by the Service in this regard.'' 

In his interview with the staff, Mr. Bartli said tliat the memorandum 
of June 20, 1969, looked familiar and that he vaguely recalled it. Mr. 
Barth said that he imagined that he would have shown this memoran- 
dum to Mr. Thrower, although he could not recall doing this. Also, Mr. 
Barth said that, while he does not recall what he did with respect 
to the taxpaj^ers named in the memorandum, his regular procedure 
would have been to refer the matter to Donald Bacon, because he was 
Assistant Commissioner (Compliance). 

Mr. Thrower told the staff that he does not recall the June 20, 1969, 
memorandum from Mr. Huston to Mr. Barth and does not recall talk- 
ing to Mr. Barth and asking him to do anything specific with respect 
to the inquiry. Mr. Thrower noted, however, that any inquiry of this 
type generally would have gone to Mr. Bacon. Mr. Bacon told the 
staff that he does not recall being asked to take a special look at the 
taxpaj'ers mentioned in Mr. ThroT\'er's memorandum of the June 16, 
1969 meeting or in Mr. Huston's June 20, 1969 memorandum. 

Telephone mil of June 26, 1969.— In June 1969 Eddie D. Hughes, 
then a special agent in the Alcohol, Tobacco and Firearms (AT&F) 
Division of the IRS, was assigned to the Atlanta region. At that 
time, he was a national coordinator for AT&F v/ith respect to 
militant organizations. On June 26, 1969, Mr. Hughes participated in 
a conference of AT&F agents in Phenix City, Alabama. Present with 
him at that conference was the AT&F Chief of Enforcement, Thomas 
Casey. 

In his staff interview, Mr. Hughes said that during the 26th of June, 
Mr. Casey told him that he (Mr. Casey) had received a telephone call 
from the head of AT&F, Harold Serr. Mr. Hughes said that as a re- 
sult of this call he was told that he was to go to Washington on July 1, 
1969, to brief Donald L. Bacon, Assistant Commissioner (Compli- 
ance) and his staff on militant organizations. Mr. Hughes said he re- 
members this call and the date of the call because it corresponds with 
his "daily reports" which he made as an AT&F special investigator. 
(Mr. H^ughes also said that this trip to Washington interrupted his va- 
cation plans.) 

Mr. Hughes said in his staff interview that Mr. Casey told him 
that he was to help prepare a report for the White House while he was 
in Washington on this trip. On June 27, 1969, Mr. Hughes submitted an 
application to AT&F for reimbursem.ent for expenses to be incurred in 
the use of his own automobile in travelling to Washington on June 29, 
1969. In this application, Mr. Hughes said, "My presence in Washing- 
ton, D.C., is necessary to assist the National Office with a report on mili- 
tant organizations, and the financial funding thereof, as it relates to 
violations of the Internal Revenue Code. The report was requested by 
and will be KubmJtted to the White House." In his staff interview, Mr. 
Hughes said that Mr. Casey had told him to include this statement in 
his application for reimbursement. Mr. Hughes told the staff that at 
that time AT&F had limited funds and this statement was to be used to 
substantiate Mr. Husrhes' use of his personal car. 

In his staff interview, Harold Serr said he did not recall talking 
with Mr. Casey on June 26, 1969, about Mr. Hughes traveling to Wash- 



21 

in^ton, nor could lie recall any Wliite House interest with respect to 
militant organizations.^^ (Additionally, Mr, Serr said that he had only 
infrequent contact with Mr. Barth. ) 

Meeting and memorandum of July i, 19G9. — In his interview, 
Mr. Hughes said that on July 1,1969, he gave a full-day briefing on 
militant organizations to members of the staff of the Assistant Com- 
missioner (Compliance) . (Mr. Bacon, the Assistant Commissioner, told 
the staff that his diary indicated he met with Mr. Hughes on June 30, 
1969, not July 1.) Mr. Hughes said in his interview that after the 
briefing he helped Bernard Meehan of the Assistant Commissioner's 
staff prepare a report from the Assistant Commissioner (Compliance) 
to Mr. Barth on ideological organizations.^- (In his interview, Mr. 
Meehan confirmed that Mr. Hughes had helped prepare the memoran- 
dum.) Mr. Hughes also said in his interview that he thought this 
memorandum was in response to an inquiry from Mr. Barth the week 
before, that he understood this report was to go to Mr. Barth, and that 
as far as he knew he did not participate in preparing a report for t\\Q 
White House. 

The report to Mr. Barth was on the activity of the Compliance 
Divisions v/ith respect to "Ideological Organizations." The memoran- 
dum begins by saying "In view of the recent high level interest shown 
in the activities of ideological organizations, I asked the Compliance 
Divisions concerned to furnish a three-phase report outlining the en- 
forcement action taken ...."' The memorandum then discussed cur- 
rent activity with I'esi^ect to five specific organizations that also were 
listed in a June 25, 1969, memorandum of the Assistant Commis- 
sioner (Compliance) to his division directors. The memorandum also 
includes a list of organizations Avhich were then being examined by the 
Service, and a short description of the action being taken. (In his 
interview, Mr. I'.Ieehan indicated he did not believe that the phrase 
"high level interest" referred to ^-^^lite House interest.) 

It is not clear when Mr. Barth asked for the information contained 
in this memorandum. There is some evidence th?vt suggests that his 
request may have occurred around June 25, 1969, and that his request 
]nay liaA^e been tlie origin of the memorandum of that date from the 
Assistant Commissioner (Compliance) to the directors of the various 
brandies within the Compliance Division of the lES. However, none 
of the people interviewecl by the staff vdio were working in the office 
of the Assistant Commissioner (Compliance) recall any connection 
between the June 25, 1969, memorandum and an inquiry by Mr. Barth 
or by the '\Yliite House. Instead, as described below, they recall that 
the memorandum was written as a result of Mr. Green's reaction to his 
testimony on that day before the Permanent Subcommittee on Investi- 
gations of the Senate GoA^ernment Operations Committee. 

Mr. Huston told the staff that he believes he has previously seen 
a copy of the July 1, 1969, memorandum from the Assistf^nt Com- 
missioner (Compliance) to Eoger V. Barth regarding "Ideological 
Organizations," and said he believes ^hat he received a cony of the 
memorandum from Mr. Barth. Mr, Huston noted in his interview 



'1 Mr. Casey has since died. 

^" The staff is aware that Mr. Meehan is related hy marriace to Ms. Rose Mary Woods, 
the secretary to former President Nixon. Howeyer, the staff hfis found no indication that 
this relationship affected ISfr. Meehan's actions in any way with respect to the subject 
matter covered by this report. 



22 

that in his August 14, 1970, memorandum to Mr. Barth (described in 
section VI, Coordination with Other Oovernment Units, below) he 
used the te;'m "Ideological Organizations." Mr. Huston said that this 
is not his terra and he believes it is logical that the term came from 
the July 1, 1969, memorandum. (The term "Ideological Organiza- 
tions" was developed by the Service in the course of an earlier project ; 
see section X, Previous "Ideological Organizations" Project.) 

Additionally, Mr. Huston told the staff that he did not know the 
internal organization of the IRS and did not know who did what in 
the Service. However, his memorandum of August 14, 1970, to Mr. 
Barth asked for progress made by the "Compliance Divisions" of the 
Service. Mr. Huston said that he believes he used this term because 
he had seen it in the July 1, 1969, memorandum to Mr. Barth. Mr. 
Barth said in his interview with the staff, he did not recall sending 
the memorandum of July 1, 1969, to Mr. Huston, but it would not 
surprise him if this had occurred. Also, Mr. Huston's memorandum of 
August 14, 1970, to Mr. Barth referred to a previous communication 
of July 1, 1969, between Mr. Huston and Mr. Barth. Mr. Barth sug- 
gested to the staff that the date July 1, 1969, may have been used be- 
cause it was the date of the memorandum from the Assistant Commis- 
sioner (Compliance) to Mr. Barth. 

Mr. Thrower said in his staff interview that he has no recollection 
that he authorized Mr. Barth to send a copy of the July 1. 1969, 
memorandum to anyone at the Wliite House and had not known that 
the memorandum was sent to the Wliite House. Mr. Thrower said 
he does not recall seeing this memorandum previously or discussins: 
it with Mr. Barth. 

Memorandum of July ^^, W69.-~On July 24, 1969, the formal 
organizational meeting of the SSS (Activist Organizations Commit- 
tee) occurred. This meeting was recorded in a memorandmn (entitled 
"Activist Organization Committee") to the file of the same dat-e by 
Donald O. Virdin (then Assistant Chief of the Disclosure and Liaison 
Branch) , who attended the meeting. 

In his staff interview, Mr. Huston said that he believes he has 
previously seen the memorandum of July 24, 1969, entitled "Activist 
Organizations Committee" prepared by Mr. Virdin. Mr. Huston said 
that he thinks Mr. Barth or Mr. Thrower sent him a copy of this 
memorandum. Mr. Huston said his reaction to the establishment of 
the SSS was that this was "iust another committee." (Mr. Huston 
said that the general assumption in the ^Vhite House was that when 
the bureaucracy wanted to avoid taking action, a committee would be 
formed.) 

Mr. Barth said in his staff interview that he did not recall sending 
Mr. Huston a copy of the July 24. 1969, memorandum. Mr. Thrower 
told the staff that he did not send this memorandum to Mr. Huston, 
and that he does not recall authorizing Mr. Barth to send it to JSIr. 
Huston. 

Other indications of Whitp, House interest. — Donald O. Virdin 
said in his interview that sometime earlv in July 1969, Patrick 
Putnam (who was then the FBI liaison with the Service) told him 
that he (Mr. Putnam) had been told by Mr. Huston at the White 
House that Mr. Huston had seen an IRS memorandum on what the 
IRS was doing regarding activist organizations and that Mr. Huston 



23 

was glad the Service was doing something about this. Mr. Putnam 
told the staff he had no recollection of such a conversation with 
Mr. Virdin, and that he only met Mr. Huston once, at which time 
he did not discuss this activity of the Service. Mr. Huston told the 
staff that he did not know Mr. Putnam and has no recollection of 
talking with him. 

Mr. Virdin also wrote a note on the bottom of a memorandum 
for the file he prepared on July 17, 1969, regarding a conversation he 
had with Mr. Putnam about FBI procedures concerning investigations 
of organizations. The handwritten note says "White House — 
Tom Houston (sic) — in charge — Barth & Bacon." In his interview 
Mr. Virdin said that his notes mean that memoranda were prepared 
by Mr. Bacon, they went to Mr. Barth, and then to Mr. Huston who 
was in charge of this program at the White House.^^ Mr. Virdin said 
that he recalled that Mr. Putnam told him of Mr. Huston's role. 

In a later memorandum to the file (July 31, 1969), Mr. Virdin 
reported a conversation he had with Bernard Meehan about the 
SSS. Mr. Virdin's memorandum says that a copy of the minutes of 
the meeting on the SSS was forwarded to Mr. Barth, and that Mr. 
Meehan said that they were at the White House. In his interview, 
Mr. Meehan said that he did not recall saying this to Mr. Virdin. 

Statements concerning lack of White House direction. — Mr. Huston 
said in his staff interview that no one talked to him in advance about 
setting up the SSS nor did he have any discussion with Mr. Barth 
about the IRS setting up such an organization. Mr. Huston said that 
no orders were given to Mr. Thrower at the June 16, 1969, meeting. 
He said there was no request at the meeting that there be a "report 
back tomorrow," but there was a request that Mr. Thrower take a look 
at the compliance with the tax laws of left-wing exempt organizations. 
Also this request was repeated in Mr. Huston's memorandum to Mr. 
Barth of June 20, 1969. 

Mr. Barth said in his interview that he is sure he did not say to the 
people in the Compliance Division that the White House has ordered 
the IRS to establish a group to monitor acti^dst organizations. 

Mr. Thrower said in his interview that he does not know exactly 
what the SSS did and that his concept of the SSS is that it primarily 
was a "cut-and-paste" operation. Mr. Thrower said that if the SSS had 
been a creation of the White House, that he would specifically recall 
what its function was. 

Mr. Green and Mr. Bacon also said at their interviews that they did 
not receive any White House direction or pressure to set up an orga- 
nization such as the SSS. 

Permanent Subcommittee on Investigations of the Senate Committee 
on Govern/ment Operations 
On June 16, 1969, the Permanent Subcommittee on Investigations of 
the Senate Committee on Government Operations began a series of ex- 
tensive public hearings on organized groups involved in riots in the na- 
tion's cities and on university campuses." These hearings focused on 

" Mr. Bacon told the staff he did not know that the memoranda of July 1, 1969, or 
July 24, 1969, were sent to the White House. 

" Hearings on Riots, Civil and Criminal Disorders Before the Permanent Subcommittee 
on. Investipations of the Senate Committee on Government Operations, 91st Cong., 1st 
Sess., part 18, et seq. (1969). 



24 

the Black Panther Party, the Students for a Democratic Society, the 
Student Non^dolent Coordinating Committee, and the Eepublic of 
New Africa. The hearings took place after more than a year of inves- 
tigation and analysis by the Subcommittee's staff. 

Request for tax infoTmation. — Part of the investigation by the Per- 
manent Subcommittee dealt with the finances of militant organiza- 
tions. As a result, the Permanent Subcommittee requested access to tax 
information (under sec. 6103 of the Code and Executive Order No. 
11454 dated February 7, 1969) on 22 specific organizations. On March 
5, 1969, Senator John L. McClellan, Chairman of the Permanent Sub- 
committee on Investigations, wrote to David M. Kennedy, Secretary of 
the Treasury, asking that six members of the Perm.anent Subcommit- 
tee staff have access to tax information on these 22 organizations, and 
that the revenue agents and auditors familiar with the relevant files 
be made available to talk with Subcommittee staff members. Pursuant 
to the tax laws, this information was made available by the Service.^^ 

Soon after Senator McClellan's request, a memorandum (dated 
March 25, 1969) was sent from Donald L. Bacon, Assistant Com- 
missioner (Compliance) to all Regional Commissioners with respect 
to the 22 organizations listed in Senator McClellan's letter. In this 
memorandum, Mr. Bacon asked the Kegional Commissioners to "pre- 
pare a complete, detailed, and comprehensive memorandum for each 
organization in your region. . . ." The memorandum was to include 
information with respect to tax return filing and payment history, 
names and addresses of organizers and ofScers, exem.pt status, fmancial 
status and source of funds, investigative history, and an overall picture 
of the organization, including motives, activities, attitude, size, and 
im.pact on the general public.^'' (However, the Permanent Subcommit- 
tee did not ask the IRS to compile this information in the National 
OiRce. The memiorandum was sent to the field apparenth/ because the 
lES felt there should be more information in the National Oflice on 
these organizations.) 

Investigation hy Permanent Subcommittee staff, — During the spring 
and early summer of 1969, staff members of the Permanent Subcom- 
mittee made several field trips to talk with Internal Revenue Service 
personnel about specific orga^nizations. 

Philip Manuel, Chief Investigator for the Permanent Subcom- 
mittee, said in his interview that mxembers of the Subcomm.ittee staff 
made several trips to the Atlanta area in connection with the in- 
vestigation of one organization which the Permanent Subcom- 
mittee focused on during its hearings. Mr. Manuel told the staff 
that while he was in Atlanta, he talked with the revenue agent exam- 
ining this organization, the agent's Group Supervisor, the District 
Director, and with other people in the Atlanta Office. Mr. Manuel said 
he discussed how his investigation was progressing, and what the 
Permanent Subcommittee staff was discovering. Mr. Manuel said that 
he talked with these IRS people in order to cooperate with the Service. 
In addition, Mr. Manuel said that in the National Office lie talked with 
Leon Green who was Deputy Assistant Commissioner (Compli- 
ance) and with Donald Virdin, then Assistant Chief, Disclosure 
and Liaison Branch. 



'" A similar request was made in September 196S and access was srranted then as well. 
The 1969 reanest was needed because a new Congress had been convened in January, 1969. 

^" Apparently, this request created "much fuss" in the field and several roeions asked 
whether they were to begin an audit of these organizations based on this memorandum. 
Memoranda to the file indicate that the regions were told not to begin audits, but only to 
furnish Information to the National Office. 



25 

In a memorandiini for the file of May 26, 1969, dealing with his con- 
tacts with Mr. Manuel, Mr. Virdin wrote that Mr. Manuel had said 
that Senator McGlellan was rather upset because the Service had not 
done anything regarding militant organizations. However, on May 28, 
1969, Mr, Virdin also wrote in another memorandum for the file that 
Mr. Manuel had indicated that recent action by the Service reduced 
some of this criticism. Similarly, Leon Green wrote in a memora- 
dum of May 29, 1969, to Donald L. Bacon that Mr. Manuel wondered 
why "we have not been more active in organizations other than 
[taxpayer]." 

Mr. Manuel said, in his staff interview, that he never considered that 
the Internal Revenue Service was under investigation. However, he 
said that the investigation made some IRS people uneasy. Mr. 
Manuel told the staff that it was obvious that there was a certain 
amount of noncompliance with the tax laws on the part of at least 
two of the organizations that the Permanent Subcommittee was focus- 
ing on. He also said that Subcommittee concern with this situation 
may ha^^e been transmitted to the IRS although he did not know 
v*^hat conclusions the IRS might have reached in this regard. Mr. 
I^.fanuel additionally said that he had observed increased activity on 
the part of the IRS, and that the IRS seemed to become more involved 
in examining militant organizations, as his own investigation went on. 

Testimony hefore the Permmient Subcommittee on June £5, 1969 hy 
IRS personnel. — In the course of the Permanent Subcommittee's in- 
vestigations, attention was focused on an organization that had not 
filed tax returns for a number of years. The Service was examining 
this organization, but the Department of Justice had refused to en- 
force a summons which had been served by the IRS on the organiza- 
tion and its officers for production of certain books and records. 

At the end of May, 1969, Senator McGlellan indicated in a letter to 
Secretary of the Treasury David M. Kennedy that the Subcommittee 
was considering calling the revenue agent examining this organization, 
and others from the Service, to testify. On June 25, 1969, four Reve- 
nue Service employees testified before the Permanent Investigations 
Subcommittee in executive session — Roy H. Orr, a revenue agent 
from Atlanta; Robert Kollen, Assistant Regional Counsel from 
Atlanta; Leon Green, Deputy Assistant Commissioner (Compli- 
ance); and Robert Spatz, Assistant to the Chief Counsel. Mr. Spatz 
said in his staff interview that he attended tl\Q hearing because he 
had been designated as counsel for Mr. Orr and Mr. Kollen. Mr. Spatz 
also said that he had thought that someone from the National Office 
should be at the hearing, and believes he may have suggested that 
Mr. Green attend. 

Most of the executive session before the Permanent Subcommittee 
dealt with the Internal Revenue Service examination of the organiza- 
tion described above." Mr. Orr generally testified about his attempt to 
secure books and records from the organization, and about the results 
to date of his examination of the organization. Mr. Orr also testified 
about financial transactions of this organization. Most of the hearing 
involved the testimony by Mr. Orr. 

In his testimony before the Permanent Subcommittee, Mr. Green 

"The Permanent Subcommittee on Investigations made the transcript of this executive 
session available to the Joint Committee staff for this report. 



26 

indixiated concern with respect to the way the examination of this 
organization was going, because he thought it might set a bad prece- 
dent with respect to other organizations. Mr. Green also indicated 
that only one week before, the Service had begun an audit of another 
organization in which the Permanent Subcommittee was interested. 
In response. Senator McClellan said "I was not criticizing you." 
Lat^r in the hearing Senator McClellan said that "I happen to 
be subject to the income tax" and "I just don't understand why 
some other group that is probably dedicated to the overthrowing of 
the Government, to violence, can escape comparable treatment." Sen- 
ator McClellan indicated he thought that the Service had been 
"thwarted" in its investigations, both by the organization being inves- 
tigated and by the Justice Department, At a later point he said, that 
"I hope we will find some way to deal with them. If they don't owe 
any tax, well and good." 

In his interview with the staff, Mr. Green said that, before he 
testified, he had no reason to think it was going to be a pleasant ex- 
perience, because there were so many questions that the Service could 
not answer. Mr. Green said that he recalled ^^ that Senator McClellan 
was very outspoken and critical that the IRS had not done more. 
He said that with respect to at least one organization. Senator 
McClellan was quite critical of the Internal Revenue Service. Mr. 
Green additionally said that Senator McClellan made it clear that he 
felt it was the duty and responsibility^ of the Internal Revenue Serv- 
ice to be sure that organizations of this type, and the people in them, 
pa}/ the right amount of tax. 

Mr. Green said in his interview that when he came back to the 
Service from his appearance before the Permanent Subcommittee, 
he felt concerned that the Service was not in a position to be able to 
answer questions about militant individuals and organizations who 
were spending considerable amounts of money, and he was concerned 
about the money that militant groups were allegedly spending on fire- 
arms and explosives. Mr. Green also said that he felt that the Service 
had been "raked over the coals" by Senator McClellan. 

Mr. Green also told the staff that he did not recall Senator McClellan 
making any suggestion or proposal for IRS action in this area, 
that he was not directed to do anything in particular, and was not 
directed to set up an organization like the SSS. However, Mr. Green 
said that he felt it was clear that Senator McClellan felt strongly that 
the IRS should do something to be sure that extremist organizations 
did not abuse the tax laws. 

Mem,orond'i///n of June 25. 1969. — On the same day that Mr. Green 
testified before the Permanent Subconimittee on Investigations, a 
memorandum was sent by the Assistant Commissioner (Compliance) 
to his division directors asking them for information on five named 
ideological organizations, plus additional information on any other 
similnr organizations that were being examined at the time. Two of the 
named organizations had been mentioned in meetings or memoranda 
involving the White House : three (and perhaps four) of the organiza- 
tions were of interest to the Permanent Subcommittee. 



'" Mr. Green's interview took place before he had read the transcript of his testimony 
before the Permanent Subcommittee on Investigations ; therefore, his statements are his 
Independent recollections of this hearing. 



27 

This memorandum may have been stimulated by the memorandum 
from Mr. Huston to Mr. Barth of June 20, 1969 described above. How- 
ever, none of the individuals interviewed by the staff had tliat recollec- 
tion. In particular, Bernard Meehan, who was a staff assistant to 
the Assistant Commissioner ( Compliance) and who actually wrote the 
meijiorandum, said in his staff' interview that he believes the memo- 
randum had no connection with the White House. Mr. Meehan said 
that the only recollection that he had concerning the memorandum 
was that Mr. Green appeared before the Permanent Subcommittee, 
came back to the Service, and wanted the memorandum done that day. 
Mr. Green said in his interview that he did not have any recollection 
of Mr. Barth calling him and asking him for a report to the Wliite 
House, and he said that such an event would have been "burned on 
iny memory and I would never have forgotten it." (Mr. Green did not 
recall the memorandum that Mr. ISIeehan prepared on June 25, 1969.) 

Meetings of July 2, 1969, and July 29, W69.—The first recorded 
meeting within the Service dealing with what ultimately became the 
SSS was held on July 2, 1969. The minutes of that meeting state that 
a meeting with Philip Manuel, on the Permanent Subcommittee staff, 
was to be held on July 29, 1969. (This meeting is described more fully 
in section IV, Development of Special Service Staff.) 

At the July 29 meeting, members of the SSS met with Mr. Manuel 
and two other investigators from the Permanent Subcommittee. At 
that me_eting, Paul Wright (Chief of the SSS) outlined what the SSS 
was going to do and said that any informal arrangements for ex- 
change of data (or questions from the Permanent Subcommittee con- 
cerning the activities of the SSS) were to be directed to him. Mr. 
Wright also generally discussed the plans for the operation of the SSS. 
The IKS minutes of that meeting state that Mr. Manuel, subject to the 
approval of Senator McClellan, offered the cooperation of the Perma- 
nent Subcommittee to the IRS. 

Initial oi'ganisatio'tis reviewed hy SSS. — The SSS began with files 
on 77 organizations. (See section V, Special Service Staff Files.) 
Twenty-two of these were the organizations that the Permanent Sub- 
committee inquired about on March 5, 1969. An SSS report states 
that, in the initial stages, the "principal review of files has been con- 
centrated on" these 22 organizations. 

Later memorandum. — In August 1970, Tom Charles Huston wrote 
a memorandum to Roser V. Barth asking about progress tliat the 
Compliance Division of the Service had made with respect to ideologi- 
cal organizations. The response to this inquiry essentially was pre- 
pared by the SSS. The response, in its first paragraph, discusses'^the 
hearings of the Senate Committee on Government Operations which 
dealt with militant organizations. This report to Mr. Huston in the 
White House, therefore, links the establishment of the SSS with these 
hearings. 

Statements concei-ming Jack of dJrection hy the PermMnent Suh- 
conhriiittee.-—Mv. Green said in his interview that he did not recall 
any suggestion during the Permanent Subcom.mittee hearings that the 
Service take specific action with respect to militant organizations, and 
he did not recall Senator McClellan stating any proposals for IRS ac- 
tion. In this regard. Mr. Green said "We were^iot directed to do any- 
thing particularly, and certainly not to set up the organization that we 

52-219—75 3 



28 

set up." Mr. Green also said, however, that it was clear that Senator 
McClellan felt strongly the lES should do something to be sure there 
were no abuses and violations of the tax law by extremist organiza- 
tions. 

Mr. Manuel also said, in his staff interview, that he did not recall 
any time that anyone from the staff of the Permanent Subcommittee 
gave the IRS any guidance or asked them to do anything specific 
regarding their own procedures or investigations. Also, Mr. Manuel 
said that he, personally, did not in any way try to set policy of the 
Service nor did he recommend actions the Service should take. 

Other Factors Ajfecting the Internal Revenue Service 
Randolph Thrower said in his staff interview that at the time in 
question he and others in the Service were pressing Mr. Bacon, the 
Assistant Commissioner (Compliance) , to do the most he cx)uld, within 
the limits of available manpower, in the exempt organization fiekL 
Mr. Thrower told the staff that there were congressional complaints 
about exempt organizations from members of both parties and from 
Congressmen and Senators of both liberal and conservative philoso- 
phies. Mr. Thrower said that this reached a "high level of intensity" 
by the time he became Commissioner. Mr. Thrower also said that his 
impression was that Senator McClellan and his subcomrnittee con- 
stituted a prime stimulant with respect to exempt organizations. 

Mr. Thrower noted also that during the first-half of 1969, the Ways 
and Means Committee hearings on tax reform emphasized private- 
foundations, and also put emphasis on political activities of private 
foundations. (The Ways and Means Committee actions did not relate 
to extremist organizations.) In a speech on August 10, 1969, before the 
American Bar Association Section on Taxation, Mr. Thrower stated 
that "I have recently assured the Ways and Means Committee that I 
and my staff will give personal attention to the movement and di- 
rection of [the exempt organizations] program." Mr. Thrower also 
said in his staff interview that, in response to a request from the Senate 
Finance Committee, he agreed to set up an exempt organizations 
Advisory Committee composed of prominent citizens representing a 
cross-section of American life to advise the Service with respect to 
basic policy concerning exempt organizations. 

Mr. Thrower told the staff that he did not consider that the princi- 
pal stimulus with respect to exempt organizations came from the- 
administration, although there was no question the administration was 
quite interested. Mr. Thrower told the staff that it seemed merelv an 
incident that the White House indicated a similar concern about 
abuses in the exempt organization area. (He additionallv stated that 
this seemed an entirely appropriate concern for the President and the- 
White House, although there did appear at times a tendency on the 
part of the White Plouse to focus its concern upon the activities of 
organizations of the left, but that he would consistently respond tliat 
the IRS was concerned with potential violations "across-the-board.") 

Dech'wn. to Set Up the SSS 

In his interview with tlie Joint Committee staff, Leon Green (then 
Deputy Assistant Commissioner, Compliance) said that he recom- 
mended to Donald L. Bacon (then Assistant Commissioner, Compli- 



29 

ance) that the SSS be set up (and Mr. Green also said that it quickly- 
expanded beyond 'anything he visualized), Mr. Bacon said he agreed 
with this recommendation. Mr. Green said that there was no White 
House influence in his decision. ISIr. Bacon also said in his interview 
that there was no direction or pressure from the White House in the 
decision to set up this group. Mr. Green and Mr. Bacon additionally 
said there was no direction from the Congress to set up such an orga- 
nization, although after he had testified before the Permanent Sub- 
committee on Investigations of the Senate Committee on Government 
Operations. INIr. Green felt the Service had to take some action with 
respect to activist organizations. (]Mr. Bacon told the staff that the 
SSS was started partly to be able to respond to the questions raised by 
Mr. Green because of his appearance before the Permanent 
Subcommittee. ) 

Ap-pendix 

JuxE 16, 1909. 
Memorandum for the file 
Subject : Exempt Organizations Advisory Committee. 

I conferred today with Dr. Arthur Burns with the expectation of 
securing from him recommendations for this committee and comments 
on proposals that we had developed. As it turned out, practically all 
of our time was directed toward a discussion of program and policy 
and very little time was left for discussion of personnel. We consumed 
a full hour together and people were being kept waiting for an appoint- 
ment vritli Dr. Burns. 

As to the list of those recommended bv others for consideration as 
chair-man, Dr. Burns expressed the opinion that they all expressed a 
more liberal philosophy than that entertained by the President, and 
evidently by himself, and that he would like to have us consider other 
possibilities. He mentioned two presidents of fairly small colleges with- 
out national recognition. jMy response was, first, that we would like to 
have someone of national stature to assist in providing status to the 
committee and also someone of such a philosophy and breadth of in- 
terests 'as to lend the greatest credibility to the committee's recom- 
mendations and to our decisions reached with the aid of the committee, 
I expressed the fear that mv selection of a noted conservative would 
tend to prejudge and discredit the results in the eyes of some, particu- 
larly of the people most affected, that is, the foundations, before the 
work was ever begun. I suggested, therefore, that this be kept in mind 
in making suggestions for the selection of a chairman, recognizing that 
there was ample room on the committee for more conservative points 
of view\ This exchange came toward the close of our conversation and 
it was terminated with my request to Dr. Burns to give consideration 
to the question and let us have liis suggestions on personnel. 

Dr. Burns seemed initially interested principally in expressing to 
me the concern of the President about enforcement in the area of 
exempt organizations. The President had expressed to him great con- 
cern over the fact that tax exemj^t funds may be supporting activist 
groups engaged in stimulating riots both on the campus and within 
our inner cities. He called in a younger man, a INIr. Huston (Dr. Bums 
later told me he thought his first name was Tom) from the staff- of 
James Keogh, research and writing staff' of the President. ]Mr. Huston 
is a lawyer who has had some experience in pursuing applications for 
tax exemption and cited a number of instances where he thought that 



30 

the tax exemption was being abused, or where lie thought the lES was 
not applying its rules equally to the organizations of the right and 

the left. As an instance of abuse he referred to the which he 

said has recently separated into two groups, one engaged in legislative 
activity, in order to protect the exemption of the group receiving dona- 
tions. He seemed to have information on this available in his files. Dr. 
Burns expressed concern that the citizens welfare group, reported in 
the papers recently as extracting $35,000 from social workers mider 
confinement and threat of harm, may have been tax exempt. I ques- 
tio'-«ed the probability of its being tax exempt. 

]Mr. Huston mentioned the denial of the exemption of the 

W'hile another group opposing the legislative objective sought by the 

enjoyed an exemption. He also mentioned the fact that -^ 

in the organization of a group to support a certain policy on China, 
had felt it inappropriate even to apply for an exemption, while orga- 
nizations dedicated to precisely the opposite result enjoy the exemp- 
tion and purport to present both sides of the question while really 
providing only token balancing of the points of view. He mentioned 

what was done with respect to while other so-called religious 

groups of liberal strain, doing the same sort of thing in principle, re- 
main untouched. 

Dr. Burns raised the question as to Avhether there possibly might be 
some ideological bias within the lES toward the more liberal organi- 
zations. I explained the developing views within the IRS with respect 
to IRS organization, procedures, and the meritorious issues in this 
area. I acknowledged that the coverage had been far from satisfactory 
in the past, but pointed to the manpower problems and to the incon- 
sistency between aggressive pursuit of exempt organization investigia- 
tions and our traditional appraisal of field investigations in terms of 
productivity in dollars. I pointed out what had been done in the last 
couple of years to move the IRS to the position where fairly compre- 
hensive coverage could now be realistically contemplated provided the 
iuA^estigative manpower were expanded. As to the ideological bias, I' 
pointed out that this had not been indicated to me and that, in fact, 
the experts in the area in the IRS had felt for years that they were 
"voices crying in the wilderness" about the need for more legislative 
sanctions, better definition of permissible areas of operation, and ex- 
panded manpower to support stricter enforcement. Dr. Burns seemed 
satisfied wnth this, and said that he had no occasion to criticize, but was 
simply raising the question. I pointed out to him that bias might be 

indicated in a case like that of who ma}^ have been rather 

unimaginative in his departure from permissible conduct as contrasted 
Avith foundations that were much more sophisticated in their approach 
and thus made their operations more difficult to appraise. In this con- 
nection I explained that many of the activities supported by founda- 
tion funds which have been so objectionable may not have been per- 
formed by organizations dependent upon exemptions but by grantees 
who had no exemption. I explained that we intended to put heavy bur- 
dens on foundations granting funds under these circumstances. 

Dr. Burns w^anted to know whether enforcement would await the 
production of the advisory committee. I answered in the negative. 

J explained how the advisory committee fitted into the total plan 
proposed by the Treasuiy and apparently accepted by the Ways and 



31 

Means Committee; that is, of expanded, tightened enforcement, legis- 
lative creation of sanctions and limitations on operations, and review 
of the traditional definitional problems with the benefit of an experi- 
enced and well-advised committee of citizens. He felt that the com- 
mittee could be quite helpful in the total picture. 

We will await the recommendations of Dr. Burns while continuing 
to get suggestions from others. In the meantime, I would like for Roger 
Barth to get in touch with Mr. Huston and advise him that we would 
be pleased to receive and take into account information of the sort that 
he referred to in connection with a number of organizations and in 
particular the . 

By the way, in view of the concern expressed over the philosopliies 
of the several people recommended for chairman, I mentioned that 
among economists being considered I had in mind Dan Throop Smith, 
which seemed to meet with the full approval of Dr. Burns. 

(Signed) R. W. T. 
cc : Mr. Smith 
Mr. Barth 



June 20, 1969. 
Personal and confidential. 
Memorandum to: Mr. Roger Barth, Assistant to the Commissioner, 

Internal Revenue Service. 
From : Tom Charles Huston, Staff Assistant to the President. 

I would recommend that the Tax Exempt Organizations section take 

a close look at the activities of the . This foundation has been a 

principal source of funding for New Left leaders and organizations as 
well as old-line Communists. 

At the time the lost its tax exempt status, the — and the 

both of which were expending money for advertising and lobby- 
ing in support of Grand Canyon dams — were permitted to retain their 
tax exempt status. In fact, there is no public information to suggest 
that their activities were even reviewed by the IRS, let alone reviewed 
with the same yard stick which had been applied to the 

I assume that as a result of the testimony before the Ways and 

Means Committee, the activities of the are presently under 

examination. 

I have advised the President that Mr. Throv/er is aware of his per- 
sonal interest in this subject. The President has indicated that he is 
anxious to see some positive action taken against those organizations 
which are violating existing regulations, and I have assured him that 
I will keep him advised of the efforts that are presently under way. 

I would appreciate it if you would keep me advised of what steps 
are being taken by the Service in this regard. 

Tom Charles Huston. 



IV. DEVELOPMENT AND TERMINATION OF THE 
SPECIAL SERVICE STAFF 

Summiary 

The SSS was established in several organizational meetings held 
in the IRS during July, 1969. During this time, the initial SSS per- 
sonnel were chosen and the functions of the SSS were set out. The 
SSS was to "coordinate activities in all Compliance Divisions involv- 
ing ideological, militant, subversive, radical, and similar type orga- 
nizations; to collect basic intelligence data; and to insure that the re- 
quirements of the Internal Revenue Code concerning such organiza- 
tions have been com23lied with." Also, some people associated with the 
SSS indicated that they believed the SSS wa.s to play a role in con- 
trolling "'an insidious threat to the internal security of this country." 

The people involved with the SSS had a difficult time determining 
precisely what organizations and individuals to focus on. It appears 
from the staff's examination that the day-to-day focus of the SSS was 
largely determined by information received from other agencies, such 
as the FBI and the Inter-Divisional Information Unit of the Justice 
Department. 

The SSS generally operated by receiving information from other 
investigative agencies and congressional committees, establishing files 
on organizations and individuals of interest, checking IRS records on 
file subjects, and referring cases to the field for audit or collection 
action. Also, the SSS provided information to the Exempt Organiza- 
tion Branch (Technical) with respect to organizations whose exempt 
status was in question. This method of operation was established by 
late 1969. (Each of these areas is described in detail in later sections 
of this report.) 

In 1972, after a visit to the SSS basement offices by Commissioner 
"Walters, the SSS was moved to a different location, was included in 
the Revenue Manual, and was discussed at a conference of the Com- 
missioner, his Deputy and Assistants, and the Regional Commission- 
ers. Also, automation of the SSS files was planned, but was never 
implemented. 

In i\iav 1973 (one day after he was sworn in). Commissioner 
Donald C. Alexander met with top IRS personnel with respect 
to the SSS and directed that the SSS actions were to relate only to tax 
resisters. This was reemphasized in a second meetinp- held at the end 
of June ]97o. In earlv August 1973, the Commissioner learned of 
"^^ational Office responsibility for an TRS memorandum relatino^ to the 
SSS published in Time magazine. The Commissioner felt that the 
policies expressed by this memorandum were "antithetical to the 
proper conrluct of . . . tax administration" and he announced (on 
Aiio-ust 9, 1973) that the SSS would be disbanded. 

Betwepu iVno'ust 9, 1973 and December 20, 1973 the SSS files were 
reviewed bv TRS nersonnel to determine if anv files hnd audit or col- 
lection potential. However, except for 230 cases relating primarily to 

(33) 



34 

war tax resistors, no field referrals were made from SSS files after 
Aiia-ust 9, 1973. 

The Commissioner has testified before the Congress that when the 
various investigations of tlie SSS are completed, he will seek permis- 
sion to destroy all the SSS files. 

Establishment of the SSS 

The SSS was established in several organizational meetings held in 
the Internal Revenue Service durino; July 1969. 

Meetwg of Juty ^, 1969. — The first meeting leading to the organi- 
zation of tlie SSS" was held on July 2, 1969. Mr. Donald Bacon told the 
staif that this meeting was held pursuant to the decision made by him 
and Wv. Green to set up this organization. (This meeting was re- 
corded in a memorandum for the file of July 2, 1969, written by 
Donald O. Virdin, who attended the meeting.) lES employees from 
the Disclosure Branch, Intelligence Division, Alcohol, Tobacco and 
Firearms Division, and the Audit Division (all under the iurisdiction 
of the Assistant Commissioner, Compliance) attended this meeting. 

Mr. Virdin's memorandum states that the basic decision reached 
at this meeting was that a task force should be established within the 
lES to collect information on "ideological organizations" and to "see 
that there was coordination between all Compliance activities. Tech- 
nical, and Chief Counsel" regarding ideological organizations. The 
task force was to have "central records containing a summary of in- 
formation on all organizations which will be available for use in the 
National Office or in connection with any field investigations." This 
memorandum further states that the task force would establish liai- 
son with, and try to obtain information from, the Internal Security 
Division of the Department of Justice.^ 

At the July 2, 1969, meetine:, it also Avas decided that the IRS would 
meet with the Chief Investigator of the Permanent Subcommittee 
on Investigations of the Senate Committee on Government Operations. 
It was additionally agreed tliat the chairman of the new task force 
should be a "hitrh-grade official", perhaps someone who had been 
through the "XD" (executive development) program. 

Meeting of -hdy 8, 1969. — A follow-up meeting was held on July 8, 
1969. Generally, the earlier participants attended, with some change 
in the makeup of the group. Mr. Virdin wrote a memoi'andum sum- 
marizing this meeting also. At this meeting, it was decided that a list 
of 55 organizations which had been prepared bv the IRS since Julv 2, 
1969, would be forwarded to the field offices with a request for infor- 
mation on the organizations. This same list was to be sent to the FBI 
with a request for any information in the FBI files on these organiza- 
tions. The memorandum of the meeting noted that Donald Bacon had 
been in touch with the Internal Security Division of the Justice De- 
partment. (In his interview Mr. Bacon said that he did not recall 
talking with the Justice Department about extremist organizations.) 

1 Mr. Vlrdln's meniorarKUim of tlip itieetlnfr nlso statos that there would have to he 
Bnproynl from the Department of .Tiistlce "of any Investigation which is not solely Ini- 
tiated because of a possible IRS violation."' In a staff interview an IRS employee who 
attended the meeting stated that he did not recall this statement and that to his knowledse 
it was never contemplated that the SSS was to be used in nontax investications. Another 
IRS employee suKpested to the staff that this statement micht refer to Alcohol. Tobacco, 
and Fireanns nontax investigations or perhaps to occasional "Title 18" violations that 
the IRS might discover and would refer to other departments for investigation. 



35 

Finally, at tlie meeting, it was determined that the task force (which 
ultimately became the SSS) would have representatives from the 
Audit, Collection, Intelligence, and Alcohol, Tobacco and Firearms 
Divisions of Compliance. 

On July 14, 1969, the list of 55 organizations discussed in the July 8, 
1969, meeting was sent by the Assistant Commissioner (Compliance) 
to all Regional Commissioners, with a recjuest for information on these 
organizations. (The information requested was similar to the informa- 
tion requested from the field on March 22, 1969, regarding the 22 
organizations in which the Permanent Subcommittee on Investiga- 
tions had indicated an interest. ) 

Appointment of Chief of SSS. — Soon after the July 8, 1969, meet- 
ing, it was recommended to Mr. Bacon that Paul Wright be ap- 
pointed chief of the organization that became the SSS. (Formally, he 
was to be chairman of the Activist Organizations Committee.) Mr. 
Wright was on the staff of Harold Snyder, Director of the Collection 
Division in the National Office. Mr. Wright was a graduate of the 
XD program and had been doing special assignments on Mr. Snyder's 
staff. At that time, Mr. Wright was available for a new assignment, 
and it was agreed that he would head the SSS. 

On July 18, 1969, a memorandum was sent by the Assistant Com- 
missioner (Compliance) to all Compliance Division Directors, the 
Chief Counsel, the Assistant Commissioner (Technical), and the As- 
sistant Commissioner (Data Processing) stating that the SSS (then 
called the Activist Organizations Committee) would be formed and 
that Mr. Wright would act as its chairman. The memorandum stated 
that the SSS was being established to "coordinate activities in all 
Compliance Divisions involving ideological, militant, subversive, 
radical, and similar type organizations; to collect basic intelligence 
data; and to insure that the requirements of the Internal Revenue 
Code concernins: such organizations have been complied with. It is 
expected that the committee will function indefinitely." This memo- 
randum also stated that an organizational meeting of the SSS would 
be held on July 24. 1969. 

Meeting of July 2Ip.. 1969.— The formal organizational meeting of 
the SSS was held on July 24, 1969. According to IMr. Yirdin's memo- 
randum summarizing the m.eeting, it was agreed the SSS would begin 
fimctioning August 1, 1969. The SSS was to assemble information 
regarding activist organizations, to analvze the data to determine 
what action should be taken, and to disseminate the information to the 
appropriate Compliance Division for field investigation, if necessary. 
It was made clear at the meeting that the SSS would not take over 
the function of any Compliance Division activity, but the appropriate 
division would be expected to take whatever field action was needed. 

The memorandum of the meeting states that "this is an extremely 
important and sensitive matter in which the highest levels of Govern- 
ment are interested and in which at least three congressional commit- 
tees are currently conducting investigations." - It was also noted at the 



2 The threp ron?resslnnal commlttpps apparently inelnderl thp Senate Government Opera- 
tions Committee and the House Internal Security Committee : It Is not clear what the 
third committee was. The staff questioned several Individuals about the origin and mean- 
ing of the phr?ise "highest levels of government." No one questioned said that he thought 
this phrase i-eferred to the White House. However, as described in Section III of this 
report, there was White House Interest in the tax treatment of activist organizations and 
this interest was communicated to at least one IRS employee (Donald O. Virdin) outside 
the Commissioner's office. 



36 

meeting that the Internal Security Division of the Department of 
Justice and the FBI had many files on organizations of interest to the 
SSS. The memorandum states that the FBI would be asked to furnish 
data to the SSS, and also indicates that the Senate Committee on Gov- 
ernment Operations had information as to the structure, member- 
ship, and source of funds of the organizations in question. 

It was decided that the SSS should operate on a semi-secret basis. 
Its activities were to be disclosed "generally only to those persons 
who need to know." Also, the memorandum states that "We do not 
want the news media to be alerted to what we are attempting to do or 
how we are operating because the disclosure of such information 
might embarrass the Administration or adversely affect the Service 
operations in this area or those of other Federal agencies or con- 
gressional committees." 

At (or soon after) the July 24, 1969, meeting the personnel who were 
to be the "permanent" members of the SSS were named by their 
divisions. 

Early Focus of the SSS 

The July 2, 1969, meeting dealt with "ideological organizations."" 
However, the meaning of this term was not clear to the participants, 
and the minutes of the meeting state "We will attempt to prepare or 
obtain a definition of the term 'ideological organization.' " ^ At the 
July 8, 1969, meeting, there appeared to be no concensus as to the type 
of organizations to be reviewed by the SSS. The minutes of that meet- 
ing state that the term " 'ideological organizations' means different 
thinjjs to different people. . . ." 

The memorandum of July 18. 1969, noting Mr. Wright's appoint- 
ment to head the SSS, said the SSS would involve "idealogical,, 
militant, subversive, radical, and similar type organizations." How- 
ever, the minutes of the oro;anizational meeting of July 24, 1969, state 
that "one of our first problems will be to define and to determine what 
kind of organization we are interested in." No one interviewed by the 
staff was able to provide a specific definition of the kind of organiza- 
tions that the SSS was to deal with. In their interviews, several people 
formerly associated with the SSS acknowledged this lack of definition. 

An additional aspect of the focus of the SSS can also be seen from 
the memorandiun of the meetinj? of Julv 24. 1969. The memorandum 
states that some organizations of interest to the SSS should Iiave filed 
income tax returns but had not done so and others mie:ht be liable for 
payroll tax returns but had not filed. Additionallv, however, the 
memorandiun states that some of the organizations "may be a threat 
to the secnritv of the United States and one of our principal fimctions 
will be to detprmine the sourcps of their funds, the names of the con- 
tributors, etc." FurthermoT-e, the mpmorandnm states "A review of the 
files assembled in the IVational Office on some of these organizations 
shows commiuiistic infiltration. . . ." 

Regular bi-weekly reports written bv the SSS fo^ tho ^ssistnnt 
Commissionpr CCompliance) also include statements that bear on the 
goals of the SSS. 



^ The fprrn "idpoioerioal or{rnni5cntion" mnv have hopn nspfl bP''n"«p this <^prm wns nsprl' 
In , the July 1, lOfin. memorandnm from tlip Assistant Commissionpr (Tomrtliance) to- 
Roger V. Earth. (Also see Section X, Previous Ideological Organizations Project.) 



37 

The report dated August 22, 1969, states that : 

"Even limited review reveals a transaction trail of funds from [taxpayer] to 
[taxpayer] to [taxpayer] and numerous other organizations wliere there is ample 
evidence to indicate tax exempt money has been directed into politics, civil dis- 
orders, criminal activities involving organized burglary, arson, fire-bombing, 
'"shakedowns", purchase of firearms, stores of ammunition, and the printing of 
revolutionary publications, all aimed at destroying the economic, administrative, 
political, and military powers of the United States Government." 

A later report of December 1, 1969, states : 

"There appears to be high acclaim that the charter of this committee will lead 
to enforcement actions needed to help control an insidious threat to the internal 
security of this country. Obviously, we will receive excellent field cooperation and 
assistance nov,' that our mission is understood." 

Another report of November 2, 1970, states that : 

"This matter is cited in this report only for the purpose of suggesting that while 
revenue potential might not be large in some cases, there are instances where 
enforcement against flagrant law violators would have some salutary effect in 
this over-all battle against persons bent on destruction of this government." 

There were occasional similar statements in later years. 

These statements, and the "guidelines" noted above gave some direc- 
tion to the SSS. However, it appears from the staff examination that 
the subjects of SSS files were largely determined by the material 
available to it. (See section V Special Service Staff Files.) The first 
material available to the SSS consisted of a list of 77 organizations, 
which included the 22 organizations in which the Permanent Subcom- 
mittee on Investigations was interested, plus tlie additional 55 organi- 
zations included in the memorandum to the field of July 14, 1969. Soon 
after the formation of the SSS, it began receiving a substantial num- 
ber of FBI reports and information from other agencies, including the 
Department of Justice, (See section YI, Coordination ^Yith. Other 
Government Units.) As described in later sections of this report, it 
appears from the staff's investigation that the information received 
from tliese and other agencies formed the basis for the SSS day-to-day 
activities. 

Development of the SSS, 1969-1972 

Operations, in general. — One of the first actions of the SSS was to 
review its initial files on organizations for additional individuals and 
organizations of interest. By August 22, 1969, the SSS had established 
over 500 files identifying members of a single Black militant organiza- 
tion generally associated with force and violence. By August 29. 1969, 
the SSS estimated it had 950 files which resulted from a review of only 
three "basic files." By October 23, 1969, the SSS files totaled 1,750 
(1,225 on individuals and 525 on organizations.) This was after 
approximately twelve weeks of SSS operations. 

This growth of files continued. In September 1970 (when Mr. 
Thrower sent his report on the SSS to Mr. Huston in the White House) 
the SSS had files on approximately 4,300 individuals and 1,025 orga- 
nization'?.* (Although the SSS had established approximatelv 5,325 
files in its first year of operation, Mr. Thrower stated in his report to 
Mr. Huston that there were field referrals on only 43 individuals and 
26 organizations.) 

* A detailed description of the SSS files Is Included In section V below. 



38 

In its initial stages, the SSS also established coordination with a 
number of other agencies. In August, 1969, the SSS began to 
receive a significant number of reports from the FBI. On August 26, 
1969, the SSS received from the Justice Department a computer print- 
out listing approximately 10,000 people involved in civil disturbances. 
By September 5, 1969, the SSS had established contact with and 
received information from the House Internal Security Committee. 
SSS em]:)loyees traveled to the West Coast and established contact 
with Federal and local law enforcement officials in California by mid- 
September 1969. In December 1969 the SSS received information from 
the Senate Subcommittee on Internal Security of the Senate Judiciary 
Committee, the Na^^al Investigation Service, and Air Force Intelli- 
gence, as well as several other organizations. The SSS received sub- 
stantial information from some of these or.Q:anizations, but received 
little inform'ation from others. (The coordination of the SSS with 
other agencies is described in detail in section YI, Coordination with 
Other Government Units.) 

By late 1969, the standard SSS method of operation had been 
established. The SSS had established contact v/ith other investiarative 
agencies and congressional committees and was receiving siarnificant 
amounts of information from them on individuals and organizations. 
Files were being established bv the SSS on individuals and organiza- 
tions of interest. Social Securit^^ numbers and records were being ob- 
tained to enable the SSS to check IRS records on file subjects. SSS 
files and IRS master files were being revieived to see if there was fi- 
nancial or other inform'ation that would warrant tax examination or 
collection action. Referrals were being made to the field recommending 
collection or audit action with respect to organizations and individuals. 
Information was being provided to the Exempt Organizations Branch 
(Technical) on organizations seeking exempt status. (Each of these 
areas of the SSS activity are described in detail in later sections of 
this report.) 

/Sem.i-seeret operation. — As stated in Mr. Virdin's memorandum of 
the July 24, 1969, organizational meeting, the SSS was to have a 
"semi-secretive nature." Its activities generally were to be disclosed 
only to persons with a "need to know." 

In staff interviews it was stated that the "need to know" restriction 
was approved because it was felt that a number of younger IRS em- 
plovees were sympathetic to activist organizations and it might be 
awkward if they discovered the existence of the SSS and its functions. 
Also, some people indicated that it was believed it would be better for 
the operation of the SSS if the groups that were under investigation 
did not know of its existence. 

Until April, 1972, the SSS was not included in the Internal Revenue 
Manual and therefore until that time it operated in semi-secrecy. 

Operating space and pevHonnel. — Initially, the SSS operated as a 
special task force reporting to the Assistant Commissioner (Compli- 
ance), with office space in a conference room near Donald Bacon's 
office. The SSS (Activist Organizations Committee) began with five 
permanent "committee members" : Paul Wright, and one individual 
representing each of the Audit, Collection, Intelligence, and Alcohol, 
Tobacco and Firearms Divisions Avithin Compliance. Initially secre- 



39 

tarial help usually was borrowed from the Intelligence Division since 
those persons already had security clearance,^ (Generally, the SSS 
was staffed by eight people, including the chief of the SSS (GS-15), 
four revenue agents or management analysts (GS-13 or GS-14), one 
file clerk (GS-9), one processing reviewer (GS-7), and one secretary 
(GS-6).) 

By the end of 1969, the representative from AT&F had left the 
SSS ; the Intelligence Division representative left within six months. A 
memorandum of October 23, 196i) to Donald Bacon written by Paul 
Wright indicates these changes were recommended because most of 
the inform.ation received by the SSS related to collection and audit. 
Soon thereafter, the SSS obtained permanent space, located in the 
basement of the IRS National Oflice building. Former SSS personnel 
indicated to the staff that these facilities were not very satisfactory 
because of the location and the potential ease of access to the SSS files 
from an adjoining room. The SSS remained in that space until early 
1972. 

Development of the SSS, 1972-1973 

Commissioner'' s visit to the SSS. — In his interview, Paul Wright 
told the staff that Commissioner Johnnie jM. Walters and Deputy 
Commissioner William Loeb visited the basement offices of the SSS 
around Christmas, 1971, and stayed for several hours learning about 
the operations of the SSS. This visit was confirmed bj^ Mi'. v\'a iters 
in his interview. It ap}:)ears that this visit was stimubvted becauL^e of 
the pending publication of a storv in a national newspaper about the 
SSS. (See i\\(^New York Times, January 13, 1972.) 

In his staff interview, Mr. Walters said that as a result of the meet- 
ing he concluded that the group should not be hidden in the basement 
with their existence not known by most people in the IRS. Mr. Walters 
also stated he suspected that the group might be vrasting much of its 
efforts in collecting newspaper articles and gathering information, but 
he believed the group could be Avorthwhile. 

Changes in location, etc. — In a memorandum of January 5, 1972, 
to the Assistant Comimissioner and the Commissioner, Paul Vfri'jht 
urged tliai- the SSS be given different office sj-jace and formal status 
in the IRS, and that the SSS files be automated. Soon thereafter offices 
were ]3rovided for tJie SSS on the sixth floor of the Internal Revenue 
Service building. These offices provided additional security for the 
SSS files, including the large walk-in vault which novr holds the SSS 
files. 

On February 11, 1972, the SSS was transferred from the Compliance 
Division to the Accounts, Collection, and Taxpayers' Service Division 
("ACTS''). This transfer was made because the collection unit had 
been transferred fom Compliance to that Division and most of the 
SSS field referrals involved taxpayers who had failed to file tax 
returns — a collection problem. 

s In his staff interviow. Mr. Wright said that employees who were assigned to work 
on tbe SS?? were not formally transferred from their other jobs to the SSS, but were 
placed on temporary assignment. According to several former SSS employees this violated 
Civil Service Rules' ;ind caused problems for tho-e working on the staff because it tended 
to downgrade the iniuortance of their function. Leon fiireen and Bernard Meehan told the 
staff that all assignments to the staff were to be temporary. They also said that the SSS 
CMi'ovees were performing the same functions as in their jirevious assignments (e.^,, 
foM x-Mon '•nnlvsis). but on a coordinated basis within a single group rather than separately 
wi^^hiu each division. Consequently, it was felt that formal transfer was not necessafy 
under the Civil Service Rules. 



40 

Inclusion in Manual. — On April 14, 1972, the Internal Eevemie Man- 
ual was amended to reflect the formal inclusion of the SSS in the 
Collection Branch. 

The amendment to the Manual described the functions of the SSS 
only in a very greneral manner. The Manual stated that the SSS 
serves "ap a central information gathering facility consolidating data 
and making appropriate dissemination of information relevant to 
tax enforcement," It said that the SSS "accumula,tes inform^ation 
which involves indications that organizations (and their principals) 
mnv ionore or wilfully violate tax or firearms statues. Further, the 
SSS "determines, through various sources of information, financial 
data relative to the funding of certain activities and by analyzing the 
available data recommends field actions needed . . . . " There is also 
reference in the Manual to accumulation of data involving- tax evasion 
schemes, field referrals, liaison with the Exempt Organization Branch, 
and liaison with other Federal agencies and Congressional commjttees. 

On April 12, 1973, a supplement to the Internal Revenue Manual 
was issued to acquaint lES personnel with the SSS "operation and 
mission" and "to assure that field offices gave sufficient attention" 
to referrals by \]^(^. SSS. 

This 7^'''Tnua"' SuT)plement described the background and S'^ope 
of tJip SSS, the ISTational Office operating procedures regprcling 
the SSS. and field office operating procedures with respect to 
referrals fi-om the SSS. The Manual Supplement stated that the SSS 
was a "focal point" for information on persons involved in tax strike, 
tax resister, and tax protester activities. The Supplement did not 
mention any activity bv the SSS with respect to "extremists." "activ- 
ists," or similar individuals or organizations. (As described in Sec- 
tion VIIL Field Referrals on War Tax Besisters. the SSS had focused 
much of its attention on tax protesters. However, it did not appear to 
focus onl V on tax resistei^s in April 1973. ) 

The Manual Supplement described field referrals by the SSS and 
statecl that the field office "must evaluate the information and decide 
what investigative techniques should be used." "Highly qualified" per- 
sonnel were to be assigned to this work. Also, a quarterly report Avas 
required in order that the SSS could "monitor and coordinate field 
assignments" and "evaluate the efi'ectiveness of compliance actions." 

Charlottesville conference. — In November 1972, a meeting of all 
IRS Regional Commissioners (and the Commissioner and his Deputy 
and Assistants) was lield in Charlottesville, Virginia. This was a regu- 
lar meeting to discuss current problems and developments within the 
Internal Revenue Service. A portion of this conference was set aside 
for a discussion of the SSS by tlie Assistant Commissioner (ACTS). 
The SSS prepared briefino' books for all participants at the conference. 
The staff was told by a former SSS employee that as a result of this 
discussion in Charlottesville the SSS I'eceived a number of calls from 
IRS field personnel. (However, the staff also was told that a number 
of people in the field obtained t\\Q wrong impression about the function 
of tlie SSS, Avith many belicAang the SSS AA^as focusing on organized 
crime matters.) 

Automation. — In mid-1972, a study was begun on automating the 
SSS files. (The staff understands that an earlier automation study 
AA^as done in 1970, although nothing came of it.) In September 1972, 
a report Avas submitted to Dean Barron, the Assistant Commissioner 



41 

(ACTS) recommending automation of the SSS files; the report stated 
that automation could be done at relatively modest cost. 

On January 4, 1973, Mr. Barron sent a memorandum to Deputy 
Commissioner Ray Harless, setting out a basic plan of automation in- 
volving the development of an index for the SSS files and the develop- 
ment of an automation input and monitoring system. On February 9, 
1973, Mr. Barron sent another memorandum to Commissioner Wal- 
ters (through the Deputy Commissioner) recommending automation. 
On March 12, 1973, Commissioner Walters gave his consent to proceed 
with the system,® 

In his staff interview, Burke Willsey (Assistant to Commissioner 
Alexander) said that in July 1973 he told either Mr. Harless or Mr. 
Wright that no further steps should be taken with respect to automat- 
ing the SSS files, and shortly after this all steps with regard to auto- 
mation were terminated. 

Temhination of SSS 

Meetings of May 30 and June 22^ 1973, — Donald C. Alexander was 
sworn in as Commissioner of Internal Eevenue on May 29, 1973. The 
next day, Mr. Alexander and his Assistant, Burke Willsey, met with 
the Service personnel having supervisory responsibility over the SSS. 
A second meeting relating to the SSS was held on June 22, 1973. The 
meetings were attended by Paul Wright, Chief, Special Service Staff, 
Ray Harless, the Deputy Commissioner, Dean Barron, the Assistant 
Commissioner (ACTS), and Harold Snyder, the Director of Collec- 
tions, National Office. 

In their staff interviews, Mr. Alexander and Mr. Willsey said that 
at these meetings they were told that the SSS directed its attention 
mainly to individuals and organizations involved in tax strike, tax 
resister, and tax protester activities. (In their interviews, others who 
were present at this meeting agreed with these statements.) However, 
Mr. Willsey told the staff that upon hearing the names of some of the 
individuals and organizations on whom files were being kept, both he 
and Mr. Alexander felt that the scope of the SSS had been broader 
than tax resisters, etc. Mr. Willsey said that, as a consequence, Mr. 
Alexander told the others at the meetings that the actions of the SSS 
should be restricted to tax resisters and tax protesters, pursuant to the 
April 12, 1973, Manual Supplement. 

Informal IRS investigation. — After the initial May 30, 1973, meet- 
ing, Commissioner Alexander asked Mr. Willsey to conduct an in- 
formal investigation of the past and present operations of the SSS, 
including any White House contacts. Mr. Willsey said in his staff 
interview, that his investigation consisted of several conversations 
with Paul Wright regarding the past and future operations of the 
SSS and the examination of a number of illustrative files selected by 
Mr. Wright. 

In a memorandum to Mr. Alexander dated June 22, 1973, Mr. 
Willsey said that the SSS was devoting too much time to radical 
organizations and that inquiries regarding the tax compliance of these 
groups could be dealt with satisfactorily by a slight modification of 
programs predating the establishment of the SSS. Mr. Willsey stated 
that if the April 12, 1973, Manual Supplement were strictly complied 

^ On the memorandum -with Commissioner Walters' approval a note appears that this 
matter had been discussed with and approved by Deputy Secretary Simon and General 
Counsel Pierce. 



42 

witli the SSS would not maintain files containing materials unrelated 
to tax compliance. Mr. Willsey's memorandum suggested another 
]neeting with SSS supervisory personnel for the purpose of discussing 
the direction which the SSS" was to take. On that same day, Messrs. 
Alexander and Willsey had their second meeting with the lES per- 
sonnel named above. 

PubUcation of the '•'•Flynn MewMrandum^\ — In its August 13, 1973, 
issue, which was distributed starting August 6. 1973, Thne mapfazine 
published the contents of the so-called "Flyim Memorandum"'. This is 
a December 18. 1972, memorandum from John Flynn, Regional Com- 
missioner, to all District Directors in the North Atlantic Reo-ion. The 
meraorandum provided background on the information collected by 
and tlie objectives of the SSS. The Flynn M^mornnflum is alr>Tost iden- 
tical to a memorandum prepared by the SSS which was distributed 
at the November 1972 meeting of Regional Commissioners at 
Cliarlottesville, AHrginia (described above). Among other things, the 
Fl^'nn Memorandum stated that the SSS was gathering inform.ation 
about "VioVnt Groups" adA'ocating such things as arson, fircbombing, 
etc., and "Non-Violent Groups"' who participated in activities such as 
peaceful demonstrations, burning of draft cards, and the organization 
and attendance of rock festivals. 

Mr. Alexander said in his staff interview that because of the Time 
article, he asked Mr. Flynn to explain the origins of the memorandum.! 
Mr. Alexander said that he vras told that the memorandum was, in 
fact, a slightly altered version of the memorandum prepared by the 
SSS for the Charlottesville conference. 

Decision to disband the Special Service Staff. — In his interview, 
Mr. Alexander said that he viewed the thinking that went into the 
Flynn Memorandum "so antithetical to the proper conduct of . . . tax 
administration" that, upon learning of its National OiUce origin, he 
decided to disband the SSS. On August 9, 1973, the Internal Revenue 
Service issued a press release that stated that after a two-month studv, 
it was decided that the SSS "will be disbanded", but that the IRS 
woidd continue to pay close attention to tax rebels. The release noted 
that the political or social views of any taxpayer were irrevelant to 
taxation. On August 13, 1973, Manual Supplements were issued abol- 
ishing the various functions of the SSS. 

Ph aseout of O peraMons of SSS 

Task Force — transitional guidelines.- — On August 15. 1973, a meet- 
ing was held to discuss the pliaseout of the SSS. The results of the 
meeting are contained in an unsigned "Memorandum of Understand- 
ing," dated August 15. 1973. Under the guidelines of this memorandum, 
a task force would be formed to recommend actions to be taken for the 
orderly phaseout of the SSS and its files. The SSS would continue to 
I'eceive FBI reports and review them for possible dissemination to 
other areas, such as Inspection and Intelligence. ]Mr. Willsey and Mr. 
Wright would meet with FBI and Congressional contacts to arrange 
continued liaison and the receipt of information. SSS files that war- 
ranted no further action would be "selected out" and retained only for 

■'Mr. Al«>xniHl(>r and Mr. Wlllse.v said in their staff intorvicw.'! that the Flvnn Memoran- 
dum had been discussed In the May 30 and June 22 meetings, but that they were not told 
that the nicinorandiiiii liail its ()ii;rins in Ihi- X:'ii(iiK)l "ttlct.. ■•i fd,. otlic- '-muI i \ 

August 7, 107;!, memorandum to Mr. Alexander, :Mr. Wright said that Mr. Alexander had 
been adequately briefed about the Flynn Memorandum and its origin at the May and 
June meeliiigs. 



I 



43 

subsequent review by Conerressioual committees investigating the SSS. 
No cases would be assigned to the field from the date of the memoran- 
dum, with future assignment procedui-es to be considered by the task 
force. 

Task force recommendations. — The taslv force met in August and 
September, 1973, ultimately making a "Task Force Recommenda- 
tions" report. The two main points to which this report was addressed 
were the disposition of the SSS fiJes, and tlie divisions to which certain 
of the former functions of the SSS would be reassigned. 

The task force recommended that SSS files indicating audit or col- 
lection potential should be sent to the appropriate districts, and that 
there should be no special reportijig on tliese cases to the National 
Oflice. With respect to field referrals, the report recommended that the 
field should decide the appropriate action. The report also noted that 
the referral of files by the Exempt Organizations Branch to the SSS 
had been terminated. In addition, it was recommended that all classi- 
fied and unclassified intelligence material should be destroyed after 
the current files were either selected out or referred to field offices for 
appropriate action. 

riie report additionally started that "most of the functions performed 
by the SSS could be assumed by the Intelligence Division." Therefore, 
the report recommended that such functions as liaison with the FBI 
and other information-gathering governmental units should be cen- 
tralized in the Intelligence Division, which would integrate the data 
accumulated into its tape program. 

This report was submitted to and reviewed by Burke Willsey^- 
Mr. Willsey said in his staff interview that he felt the report had over- 
assessed the utilit}'' of the SSS file information for the other divisions^ 
of the National Office and the district offices. He said that the Intelli- 
gence Division indicated that they were not interested in receiving 
the SSS files. Mr. Willsey told the staff further that he then orally 
instructed jNIr. Wright that the files were to be retained in the SSS< 
vault and not transferred to any other division. 

FBI reports. — Special Service Staff records reflect that between 
August 9, 1973, the date of the press release announcing the disbanding 
of the SSS and September 30, 1973, the SSS receivecl 23 unclassifiect 
and 7 classified FBI reports. Mr. Willsey and ISIr. Wright informed 
the staff that they requested the FBI, in late September, 1973, to send 
its reports directly to the Intelligence Division. Notwithstanding this,. 
19 unclassified and 12 classified FBI reports were received in October 
and November of 1973. (The stall was told by the FBI that Mr. Will- 
sey had told the FBI to stop sending reports to the SSS, and tliat this 
direction was conveyed to the responsible FBI people. Plowever, the 
staff' was told that some reports may have slipped by. This may liave- 
happened because there were a number of people in the FBI in^'olved 
in the dissemination of information to the SSS.) The staff' was in- 
formed by a former SSS employee that these reports were phiced 
in the SSS files. One report was received after November 30, 1973, 
and it was sent to the Intelligence Division. 

Congressional liaison. — Mr. Willsey informed the staff that sub- 
sequent to August 9, 1973, no liaison was established with any Con- 
gressioual committees to acquire investigative-type information, his- 
feeling being that any information derived from these sources would, 
be vague and peripheral. 

52-219—75 4 



44 

'•'•S electing -Ouf' and ^'' Selecting -In'''' of -files. — The phaseout process, 
pursuant to the task force report, involved reviewing all SSS files to 
cull out ("select out") those that had no further value. Each "selected- 
out" file was set aside and marked, and the index card corresponding 
to each "selected-out" file was marked with a diagonal line. In a No- 
vember 5, 1973, memorandum, Mr. Wright reported that 78 percent of 
the files were selected-out, with the other 22 percent considered as hav- 
ing collection or audit potential. Thus, 2,554 files out of a total of 
11,458 were considered to have collection or audit potential. Of the 
2,554 "selected-in" cases, it was estimated that 95 percent were collec- 
tion cases, representing nonfiling of individual and corporate income 
tax returns and pavroll tax returns. Mr. Wright's memorandum further 
stated that the "selected-in" files would be sent to the district offices for 
necessary action. 

Mr. Alexander and Mr. Willsey said in their staff interviews that 
they did not oversee the file review, planning to wait until the comple- 
tion of the review, at which time they would discuss the matter with 
Mr. Wrifrht and make final decisions as to the disposition of the files. 

'■''War Tax Resister''' field referrals. — Between November 5, 1973 (the 
date of the status memorandum from Mr. Wright noted above) and 
December 20, 1973, approximately 230 field referrals were made with 
respect to individuals and groups apparently falling within the "war 
tax resister" category. (These referrals are described in section VIII, 
Field Referrals on War Tax Eesisters.) 

Final report. — In a December 20, 1973, memorandum designated 
*'Final Report — Phaseout of Special Service Staff", Mr. Wright stated 
that there had been a further culling out of the "selected-in" files re- 
sulting in a reduction of the number of files wliich might be referred to 
the field, and that the files "have been assigned to the appropriate dis- 
trict offices for whatever action is deemed advisable." The memoran- 
dum further stated th^at each "Assistant Regional Commissioner 
(ACTS) has been furnished with names and abstracts of the cases 
forwarded to the district offices in that particular region." 

Notwithstanding the statements that the "selected-in" files had been 
referred to the field, Mr. Willsey told the staff that (other than the 
lists of "war tax resisters" described in section VIII) no files were 
referred to any of the district offices after August 9, 1973. This was 
confirmed by other IRS personnel in staff interviews. In addition, they 
told the staff that none of the SSS files have been transferred to any 
division of the National Office, but, instead, are still deposited in the 
vault of the former Special Service Staff. The staff's examination of 
the files has not indicated anv contrary evidence. 

Ultimate disposition of files. — Testifying before the Subcommittee 
on Foundations of the Senate Committee on Finance on November 25, 
1974, Coinmissioner Alexander stated that upon the completion of the 
various investigations of the SSS, he will seek permission to destroy 
all the SSS files. 



V. SPECIAL SERVICE STAFF FILES 

Bummary 

The SSS began with the names of 77 organizations; by the time it 
was disbanded in 1973 there was a total of 11,458 SSS hies on 8,585 
individuals and 2,873 organizations. The subjects of these files included 
■organizations and individuals with widely varying points of view, 
from ail parts of the country and from many vocational and economic 
groups. 

Based on a random sample of the files examined by the staff, ap- 
proximately 41 percent of the SSS files are on Black (and ethnic) or- 
gianizations associated with violence, confrontations and civil disturb- 
ances (as well as some not associated with such activities). The SSS 
files were not limited to these organizations but included their leaders, 
employees and members as well ; (this is the case for each of the cate- 
gories described in this paragraph). Approximately 15 percent of the 
SSS files are on what are generally considered to be ^Vliite ^'right- 
wing extremist" and "racist" organizations and individuals, advocat- 
ing the use of force and violence. Approximately 18 percent of the files 
are on antiwar organizations and individuals. Approximately 11 per- 
cent of the files are on "new left" radical groups and individuals. There 
are also files on "liberal establishment" organizations such as church 
groups, etc. 

There appears to have been no clearly defined criteria for the SSS to 
use in selecting a file subject. Instead, it appears that, for the most part, 
files were established based on the source material available to the SSS. 
The primary sources of names for the SSS files were the Department of 
Justice civil disturbance list and the FBI reports sent to the SSS. 
The SSS received more than 11,000 FBI reports in four years. At times, 
particularly in the early days of the SSS, a significant portion of time 
was used to cope with (and set up files based on) FBI reports. 

The Department of Justice (througli FBI reports and the civil 
disturbance lists) appears to have provided over half of the subjects 
for the SSS files. Other sources included Congressional committees (3 
percent), the IRS (11 percent), and books and publications (12 
percent). The SSS also received information from an informant in 
the Washington, D.C., area. 

The SSS files vary considerably in size and contents. Many are one- 
half inch to 1 inch thick (in 81^ by 11 inch manila folders) and consist 
largely of FBI reports. The files* also include SSS worksheets, IRS 
master file computer printouts, newspaper clippings and miscellaneous 
information. The FBI reports often contain information on specific 
meetings or incidents involving an individual or organization; they 
also often contain background and biographical information on in- 
dividuals. The FBI reports (which furnish the bulk of the SSS files) 
contain little information directly relevant to the administration 



(45) 



46 

of the tax laws, althouo:h they sometimes include information on 
employment and assets (such as vehicles and firearms). In a few 
cases the FBI reports include information on specific financial 
transactions. 

Files ExcMmined 

According to records of the SSS, it had 11,458 total files with 8,585 
files on individuals and 2.873 on organizations. The stafi^ examined, 
samples of these files to focus on different tjq^es of subjects covered 
by the fides. To develop an overall picture of the files, the staff 
examined a one percent random sample of the entire group, both indi- 
viduals and organizations. In addition, the staff examined a 10 per- 
cent random sample of the "war tax resister" files. A number of cases 
of special interest also were examined, including the SSS files on the 
"original'' organizations on which files vrei'e established, and files on 
some prominent individuals and organizations. Also, in the course of 
reviewing field referrals (see section VII, Field Referrals), the SSS 
files, as vrell as the fiekl files, were examined. SSS files also were ex- 
amined for cases referred to the SSS from the Exempt Organizations 
Branch (Technical). In all, over 500 SSS files vrere examined by the 
staff. 

SSS Criteria for Establishing Files 

The documents regarding the formation of the SSS indicate that it 
was directed to collect information and coordinate IRS activitic^s on 
orpanizations and individuals generally described as "ideological, 
militant, subversive, radical, and similar type" organizations. From 
the documents reviewed and the staff iiiterviews, it appears that these 
tei'ms were not well defined and therefore the criteria used by SSS em- 
ployees for establishing files were not defined. In the staff interviews, 
no person formerly associated Avith the SSS was able to give a rela- 
tively precise description of the type of groups the SSS was to focus 
on,^ 

It appears from staff interviews that the SSS was to stai't with' 
the 22 organizations in which the Permanent Subcommittee on In- 
vestigations was interested and the 55 organizations that were the sub- 
ject of an IRS field inquiry on July 14, 1969. However, the SSS files 
rapidly increased beyond these organizations. 

It appears that in practice the SSS often decided to set up a file based 
upon the information it had on hand. For example, it appears that the 
SSS set up a file on every individual or organization which was the 
subject of an FBI report sent to the SSS. The SSS received a 
large number of FBI reports (over 11,000). (In tlieir straff interviews, 
spveval former SSS employees referred to the FBI reports received 
by the SSS as "a spigot under Niagara Falls,'' a.nd coming in by the 
"armload'' and by the "pound.") Mr. Bacon and Mr. Wright indicated 
in their staff interviews, that they believed that the SSS had no author- 
ity to desti-oy FBI reports it received. Since the SSS personnel felt 
that they could not destroy the FBI reports received, and since 
larfi-e numbei's of reports were received, the SSS apparently devoted 
sub'^tantial time coping with these reports, and in the process, setting 
up files to cover them. 



^ '^'hilo tlipre was no discussion of Individuals In the minutes of the organizational 
mpcthii; of tbf SSS. in a letter of Aujrnst S. lOfiO. to the FBI. Donald Bacon Indicated 
the SSS wns Interested In Information relatlnp to "predominantly dissident or extremist" 
organizations, "and/or people prominently Identified" with them. 



47 

Additionally, a substantial number of files were set up on the basis of 
the Department of Justice "civil disobedience" lists (see section VI, 
Coordination with other Government Units). In this case, SSS clerks 
apparently went through the list of names in a systematic manner, 
setting up files on the Individuals in the civil disobedience lists. In 
this case as well, the criterion for setting up files appeared to be the 
practical one of using the information that was available. 

Generally, neither the documents nor the staff interviews have indi- 
cated that there was a directive for the SSS to focus on any particular 
taxpayers within the broad category of "extremist." However, the 
staff was told that when the SSS first started, it was to focus initially 
on a Black militant organization and a "radical" left-wing organiza- 
tion. (This is generally confirmed b}' early SSS reports.) 

Suhjects of fh e SSS Files 

The individuals and organizations who are subjects of the SSS files 
cover a broad spectrum of associations and vocational categories. 

The largest portion of the SSS files ai'e on Black organizations and 
associated individuals. The SSS has a substantial number of files on 
Black organizations that advocate violence to achieve their goals, 
l' Additionally, there are SSS files on the leaders of these organiza- 
tions, on individuals closely associated with the leaders, on employees 
of the organizations, and files on current and former members of the 
or.o'anizations.) 

The SSS files included Black (and ethnic) organizations associated 
with confrontation but which do not necessarily advocate violence. 
The organization (or its leaders) may be associated with confronta- 
tion because of "demands" made on the community or on business 
organizations, or associated with civil disobedience or disturbances. 
Tlie SSS also maintained files on employees, and members of these 
oi'ganizations. 

The SSS also maintained files on Black orcfanizations generally not 
associated with confrontation, civil disobedience, or disturbances. In 
this case, also, there were files on the leaders of the organizations, their 
employees, and members. 

Approximately 41 percent of the random sample of files examined bv 
the staff apparently involved the types of organizations and individ- 
uals described above. 

There ai-e a number of SSS files on White organizations generally 
considered "right-wing extremist" and "racist," which advocate the 
nse of violence, firearms, and explosives. Additionally, there were SSS 
files on the leaders and members of these organizations. Approximately 
15 percent of the random sample of files examined by the staff were on 
these types of individuals and organizations. 

A significant part of the SSS files dealt with individuals and or.ora- 
nizations which may be considered as anti-war. Again, there were files 
on leaders, employees, and members of these organizations. Ai^proxi- 
mately 18 percent of the random sample of files examined by the staff 
were on anti-war organizations and individuals. (In this category, the 
files included some public figures such as entertainers and politicians 
who have publicly expressed anti-war views.) 

White radical "new left" organizations are included in the SSS 



48 

files, along with their leaders and members. Approximately 11 percent 
of the random sample of files examined by the staff were in this 
category. 

The SSS files included some "liberal establishment" organizations, 
such as a nationwide legal organization and a political caucus. Also, 
these were files on what may be considered by some as "liberal" churchi 
or religious groups. Some of these groups apparently were included be- 
cause of their association with anti-war or civil rights activities. 
Additionally, there were files on some universities and colleges which 
have been the scenes of civil disturbances or where "extremist" speak- 
ers have appeared. 

The staff has determined that the SSS had files on five present or 
former members of Congress. Information supplied by the IRS also 
indicates that there were files on 25 of the individuals who were on 
the White House "enemies lists." 

Of the 11,458 files, approximately 800 involved tax protesters. Gen- 
erally, these are people who have publicly stated that they refused or 
will refuse to pay their Federal tax obligations because they do not 
believe that the money is being properly used. 

Sources of Naines and Injormatwn for SSS, Files 

In general. — The names of the individuals and organizations on 
whom files were kept by the SSS generally came from four major 
soui'ces : other Federal agencies, congressional committees, other units 
of the Internal Revenue Service, and books and publications. 

The staff's review of a random sample of SSS files indicated that the 
sources of names for establishing files on individuals and organiza- 
tions were as follows : 

Department of Justice — Percent 

Federal Bureau of Investigation 4P^ 

"Civil disturbance" lists 8 

Congressional eommittees_l '-5 

Other units of the IRS 11 

Books and publications 1"-' 

Other sources or no source indicated . 23 

Total 100 

However, often the source was not indicated by the SSS file or may 
have been incorrectly indicated. This table consequently is only a 
general indication of the file sources. 

A 1972 Internal Audit study ^ of the SSS reported file sources as 
follows: 

Percent 

Federal Bureau of Investigation 55 

Department of Justice (other than FBI) 7 

Books, periodicals, newspapers 18 

All other sources 20 

Total 100 

Source of '•''originaV'' fle^-. — The SSS l^egan with the names of 77 
organizations. These were soon expanded by another 22, to give a total 
of 99 "original" organizations. However, the SSS did not focus onlv 



■ Internal Aurlit Is a division of the IRS, under the Assistant Commissioner (Inspection),^ 
whirh reviews IRS. operations to Insure that m.^najrement level responsibilities are efficiently 
discharged. Its 1972 study covered SSS operations from August 5, 1969, to June 1. 1972. 



49 

on organizations ; before the end of its first month of operations, the 
SSS files on individuals apparently had grown to well over five times 
the number of files on organizations. This pattern continued through 
August 1973, when the SSS was disbanded. 

There were three basic sources for these 99 organizations : an inquiry 
by the Permanent Subcommittee on Investigations of the Senate 
Government Operations Committee, a memorandum to the field of 
July 14, 1969, from the Assistant Commissioner (Compliance), and 
a memorandum to the field of October 8, 1969, from the Assistant 
Commissioner (Compliance). 

The first 22 organizations were included in a request for tax in- 
formation by the Subcommittee on Investigations on March 5, 1969.' 
In preparing to respond to this request, the Assistant Commissioner 
(Compliance) gathered information on these 22 organizations from 
all field offices before the SSS was established. The Subcommittee on 
Investigations did not ask the Service to com.pile this information in 
its National Office, but Leon Green, in his staff interview, said that 
this was done because the Subcommittee activities were "heating up'^ 
and it was felt that there should be more information available in the 
National Office. 

Subsequently, the office of the Assistant Commissioner (Compliance) 
compiled a list of 55 additional ''extremist" organizations and on 
July 14, 1969, sent a memorandum to the Eegional Commissioners 
asking for information they had on these organizations. Information 
supplied by the IKS shows that the names of these organizations cam.e 
primarily from the Regional Commissioner, Central Region, and the 
National Office Audit Division in response to previous requests for 
information by the Assistant Commissioner (Compliance). 

On October 8. 1969. after the SSS had been formed, the Assistant 
Commissioner (Compliance) asked the Regional Commissioners for 
information on a second list of 22 organizations. According to the 
IRS, the names for this list came primarily from a memorandum from 
an IRS special agent in the Los Angeles district office. (The FBI also- 
was the source for the names of some of these organizations.) 

In all these cases, the SSS ultimately received the information pro- 
vided to the Assistant Commissioner (Compliance) and created files 
on all of these organizations. 

FBI. — The SSS established liaison with a number of other Federal 
agencies involved in intelligence gathering. (For a more complete de- 
scription of this liaison, see section YI, Coordination With Other Gov- 
ernment Agencies.) Of these agencies, the Federal Bureau of Investi- 
gation and the Inter-Divisional Information Unit of the Department 
of Justice provided the most information. 

According to a log kept by the SSS, it received 11.818 separate re- 
ports from the FBI during the period from October 27, 1969, through 
November 30, 1973. (Other information in the SSS files indi- 
cates that the SSS received 700-800 FBI reports before October 27^ 
1969.) 

The staff was told by a former SSS employee that if the SSS did not 
already have a file on the individual or organization which was the 



= This reauest was made under section 6103(a) of the Internal Revenue Code and Treas, 
Keg. § 301.6103 (a)-lOl and pursuant to Executive Order No. 11454, dated February 7, 1969>. 



50 

subject of ail FBI report, it would set up a file upon receiving the 
report. In reviewing the files, it also appeared that if an individual or 
organization was named in an FBI report (but was not the subject of 
the report) the SSS would sometimes begin a file on this individual or 
organization. Apparently, a file was not always begun on persons 
named in FBI reports, and whether this occurred depended upon 
the decision of the SSS person reviewing the report. (However, 
there appeared to be no guidelines for an SSS employee to follow in 
these cases.) 

In June 1970, the FBI provided the SSS with a list of approxi- 
mately 2,800 organizations categorized as ''Old Left, New Left 
and Eight-Wing.'" This list appeared to be the source for a small num- 
ber of files. In June 1971. the FBI also gave the SSS a list of under- 
ground newspapers, which was used to initiate some of the 148 files 
the SSS kept on these newspapers. 

Infer-Dlvisional Information Unit^ Departm,e7\t of Justice. — The 
SSS also extensively used a computerized alphabetical list of individ- 
uals involved in civil disturbances in the United States. The list, called 
the IDIU list, was prepared by the Inter-Divisional Information Unit 
of the Justice Department. The SSS first received this list in August 
1969 when it contained about 10,000 names. In September 1971 a sec- 
ond, up-dated list of about 16.000 names was received.* (See also 
section VI, Coordination with Other Government Units.) 

The SSS reviewed the IDIU list alphabetically to obtain names 
for the SSS files. According to a former SSS employee, Jiames were 
selected from the list only ii- there was a birthdate provided, which 
the SSS could use to obtain the individual's Social Security number. 
(See section VI below.) This number was necessary to obtain infor- 
mation regarding the individual's income and income tax records from 
lES fiJes. and from the Social Security Administration. The SSS had 
not completed its review of this list by the time its operations were 
ten^^inated in Augiist 1073.^ 

The Justice Department also provided the SSS with a list of ap- 
proximately 675 organizations for which abbreviations were used in 
its IDIU^ listing. This list apparentlv was used as a source of names 
for a few of the SSS files. 

The SSS also established files on "national security cases" involved 
in refjue^sts for tax information from the Justice Department. (See 
section VI, below.) The IRS apparently received 99 such requests dur- 
ing 1969-1973 and the SSS had files on all but three of the individuals 
and organizations involved in these requests. 

Other agencies. — The SSS received information from some other 
Federal agencies with which it had established contact and from sev- 
eral State and local law enforcement agencies. (See section VI, below.) 
The staff examination of a random sample of SSS files indicated that 
few files were established based on this information. It appears, from 
staft' interviews, that the SSS made little use of this information. 

Injormmifs ^'"intelligence digests''\ — The staff was told by a former 

* This list is dpspribed in Federal Data Banks and Constitutional Rights, Staff of Sub- 
cnniinittop on Constitutional Rights, Senate Committee on the Judiciary, 93d Cong., 2d 
Sess. vol. 4, .It 220S et. seq. (Comm. Print 1974). 

^ The staff's random sample indicated approximately 8 percent of the files were estab- 
U.shpd from the IDIU list. The IRS Internal Audit study Indicated approximately 7 per- 
cent of the files were based on the IDIU list. 



51 

member of the SSS staff tliat from mid-1970 until August 1973 the 
SSS received bi-weekly "intelligence digest" reports from an inform- 
ant. This informant was active in organizations which engaged in 
demonstrations in the Washington, D.C. area. As a result of this 
activity, as well as from public sources (such as publications, etc.) the 
informant prepared a "digest" of information on these organizations. 
A former SSS staff member said he was introduced to the informant 
in mid-1970 by a member of the Alcohol, Tobacco, and Firearms Divi- 
sion (AT&F) and from then until August 1973 the informant supplied 
the SSS with copies of the bi-weekly reports he supplied to AT&F and 
other investigative agencies interestecl in this type of intelligence. 
The staff' was told that the informant was not paid by the SSS but 
was apparently compensated by one of the other receiving agencies.® 
Although the informant was considered reliable, the staff was in- 
formed that the reports provided little tax-related information since 
they dealt largely with demonstrations and other activities of orga- 
nizations. The staff was informed that these reports were returned to 
the informant from the SSS files and the relationship was terminated 
after the SSS was disbanded in 1973. The staff investigation identi- 
fied one file which may have been initiated because of information 
supplied by this informant. 

Congressional committees. — The SSS obtained names and other 
information for its files from several congressional committees. Ac- 
cording to staff interviews, the files of the House Internal Security 
Committee were used extensively for information. According to a 
former SSS employee, the SSS also obtained information from the 
files of the Permanent Subcommittee on Investigations of the Senate 
Government Operations Committee and the Internal Security Sub- 
committee of the Senate Judiciary Committee. (However, the Chief 
Investigator of the Permanent Subcommittee said tlie SSS did not use 
the Subcommittee files.) In addition, the SSS reviewed public testi- 
mony given during 1967-1969 before the Permanent Subcommittee on 
Investigations dealing with riots, civil and criminal disorders.^ (These 
congressional contacts are detailed in section VI of this report.) Con- 
gressional sources were used both to obtain names for establishing files 
and to acquire additional information where a file was already in 
existence. 

Books and publications. — The SSS subscribed to or purchased on a 
regular basis approxima^tely 20 publications, and it acquired on a 
short-term or intermittent basis approximately 10 additional publica- 
tions. Magazines acquired included Time^ The Humanist., Neto Guard,, 
and The Plain Truth. Newsletters and periodic reports which were 
purchased included Statecraft, Tupart Monthly Reports., Osth Infor- 
mation Service., The Pink Sheet on the Left., and Washington 
Observer Newsletter. Similarly, a variety of newspapers were acquired. 
These included The Washington Post, The Washington Star, The New 
York Times, and other newspapers such as The Militant, The 
Guardian, Vortex, Peoples World, Daily World, Human Events, 
American Report, Los Angeles Free Press, Christian Crusade Weekly ^ 
and The Mole. 



^ The staff has found no record of any disbiirsemeuts by the SSS to pay informants from 
the "imprest fund" available to it for confidential expenditures. 

''Hearings on Riots, Civil and Criminal Disorders Before the Permanent Suhcomm. on 
Investigations of the Senate Comm. on Government Operations, 90'th Cong., 1st and 2n<2 
Sess., 91st Cong., 1st Sess. (1967, 196S, 1969). 



52 

Books used by the SSS as source materials included The Riot Mah- 
■ers,^ The Radical Left and Far Right^ and 58 Key Influences on the 
American Right}^ The SSS also made extensive use of what was 
called the "Wilcox compilation," a listing of approximately 4,000 
oi'ioranizations and individuals entitled "Guide to the American Left." ^^ 

Since the SSS operated semi-secretly from August 1969 to April 
1972, materials about organizations were acquired using assumed 
names, and were obtained by mail. Post office boxes were used for 
deliveries and payments were made with money orders. Employees 
•of the SSS who made such payments were reimbursed from a special 
''imprest fund'' used by the Internal Revenue Service for con- 
fidential expenditures.^- The SSS was authorized to spend $100-$300 
per semiannual period from this fund. 

Internal Revenue Sermce. — SSS files also were established on the 
basis of information received from other units of the IRS. This infor- 
mation came largely from IRS field offices and Service Centers and 
concerned primarily tax resisters and underground newspapers.^^ 

These files also include some of the "original" organizations as well 
as files based on information received by another division of the IRS 
from an outside party or agency. 

The Exempt Organiziations Branch (Technical) referred ap- 
proximately 153 cases to the SSS. The SSS indicated an interest in 
SO of these cases. ( See section IX below. ) 

The Alcohol, Tobacco and Firearms (AT&F) Division was an 
aoency of the IRS until July 1, 1972, when it became a separate bureau 
■of the Treasury Department. For the first four months of the opera- 
tion of the SSS, AT&F was represented by an AT&F investigator 
who had extensive experience regarding militant organizations. The 
staff was told that the AT&F representative supplied the SSS with 
memoranda and lists of organizations and related individuals. The 
staff file reviews indicate that the SSS established files on some of 
these organizations and individuals. After the AT&F representative 
left ih& SSS on December 15, 1969, AT&F provided little information 
to the SSS. 

Growth of Files 

The SSS started on August 5, 1969, with a list of 77 oroanizations. 
An SSS report of August 22, 1969, stated that the SSS had established 
over 500 files on members of a single Black militant organization gen- 
erally associated with advocating the use of force and violence. A 
report of August 28, 1969, states that the SSS estimated it had estab- 
lished 950 case files. The status report sent to Mr. Huston at the Wh\i& 
House by Commissioner Thrower stated that by September 19, 1970, 
the SSS had established files on 1,025 organizations and 4,300 individ- 
uals. According to an Internal Audit Report, the number of SSS files 
had grown to 9,800 (7.300 individuals and 2.500 organizations) bv 
June 1, 1972. The SSS had 11,458 files on 8,585 individuals and 2,873 
organizations Avhen it was disbanded in August 1973. 



«E. H. Methvin (ArUnpton House, 1970). 

» McCuen and Bonder (Greenbower Press, 1970). 

^" F. K. Solara (I'olifox Press, 1971). 



" C. M. Wilcox (U.S. Directory Service, published annually). 

"All expenditures (not just SSS expenditures) used by the IRS to buy information 
*r^ 'l^'w lu'inf? iiudlted by the (Jpneral Accounting Office ns the agent of the .Toint Committee. 
■ The SSS activity concerning tax resisters is discussed in greater detail in section VIII 
or this report. 



53 

For the most part, the growth in the vohime of files, particularly 
in the early months of SSS operations, appears to be attributable to 
two factors. First, the SSS began receiving large quantities of FBI 
reports almost immediately. Second, shortly after the SSS began it 
acquired a substantial amount of information on a large number of 
individuals and organizations associated with several well-known "ex- 
tremist'' organizations, plus a list of "extremist" donees of a charitable 
foundation. Several people interviewed by the staff said that this initial 
flood of information caused the SSS to devote almost all of its time 
during the first several months to establishing new files (and generally 
prevented it from reviewing these files). There seems to have been an 
>over-a]3undance of files during the life of the SSS, since the staff 
examination indicates that the SSS did not investigate tax compliance 
in a substantial number of cases.^* 

Maintenance of Files 

The SSS files are maintained as separate looseleaf manila folders 
■containing documents and other information on the SDecihc individ- 
ual or organization that is the subject of each file. The files on individ- 
uals were maintained alphabetically, and tlie files on organizations 
were maintained separately, also in al])habetical order. However, in 
two instances the files on organizations were kept separate from the 
olher files. One case was that of a Black militant group that advocated 
the use of violence ; the SSS files on this grou]:) occudv one entire large 
file cabinet. The other organization is cenerally considered as a White 
)-acist group that advocates the use of violence ; the SSS files on this 
group occupy one file drawer in a separate cabinet. (Most of the files 
of these two particular organizations consist of FBI reports.) 

The SSS also maintained an alphabetical card index s^'stem, with 
individual and organization cards filed separately. However, in a num- 
ber of instances there was an index card on a subject, but no file (the 
card would refer to a file under another name in which the subject's 
tiame was mentioned). 

It was intended that the files be categorized with a letter notation 
to indicate the activitv status of each file.^^^ However, this notation 
system was not alwavs used and. when used, was not used uniformly. 

The SSS files were reviewed by the SSS staff' at two different 
times in 1973. In this review cases of no furtlier value were "selected 
out." (See section IV, Development of the Special Service Staff.) 

The SSS subject files are maintained in 10 large filing cabinets, 
occupying,, approximately 150 linear feet. (In addition, there are ap- 
proximately 25 linear feet of administrative files and research mate- 
rials.) The files are maintained in a walk-in fireproof vault, which is 
secured with a combination lock. 

Contents of Files 

The files examined by the staff varied a great deal with respect to 
size and contents. Some contained only a single newspaper clipping or 
a document. Many were approximately one-half inch to one inch thick. 
Others were two to thi'ee inches thick. As noted above, the file on one 
organization filled a large five-drawer file cabinet. 



^* The August 16. 1972. Internal Audit Report alsn noted this. 
, ^- An "A" notation would liulicate that the file had been set up but that no investigation 
Or development of the file had begun : a '-B" notation would indinate that further develop- 
ment of the file had occurred : a "C" notation would indicate the case had been referred 
to the field ; and a ''D" notation would indicate that the case had been closed. 



54 

The SSS used a "case review" sheet to summarize information con- 
tained in each file and the SSS activities which had occurred con- 
cernino- the file. The "case review" was designed to include informa- 
tion identifying the taxpayer (birth date, address, taxpayer identify- 
ing number, affiliation) , cross-references to other files and the results 
of a review by an SSS audit or collection analyst. However, the case 
review sheet seldom reflected all of the information included in a file 
and in some cases there was no entry other than the subject's name. 
Almost all files reviewed by the staff had a case review sheet. 

The SSS had also designed a four-part "work sheet" to be used to 
summarize information for cases referred to the field. There were four 
blocks on the work sheet to be used separately by the Audit,- Intelli- 
gence, Collection and AT&F Division representatives to summarize 
data about the taxpayer and action to be taken by the field in their 
respective areas of activity. Apparently, the form was used until late 
1971, when the SSS began using a narrative statement for its field 
referrals. 

In addition to the case review sheet, the documents most frequently 
found in the files were FBI reports. Over 35 percent of the random 
sample of files examined by the Joint Connnittee staff contained FBI 
reports. The FBI reports were of two basic types. The first type would 
give details of a meeting or incident involving an individual or an 
organization. The second type, sometimes supplied in coniunction 
with the first type, would provide background and biographical in- 
formation on an organization or individual. Foi- individuals, this type 
of report would provide the subject's description, address, place and 
date of birth, occupation, place of employment, criminal record (if 
any) and activities relevant to the FBI's interest in this individual. A 
similar report on an organization would discuss its orientation, activi- 
ties, funding, organizers, officers, and membership. 

The FBI reports in the SSS files seldom seemed to contain di- 
rect financial information or other information relevant to the sub- 
ject's responsibilities under the Federal tax laws. However, the FBI 
files sometimes would contain information on an individual's employ- 
ment (whether he was employed, bv whom, the employer's address, 
etc.). Also, these reports occasionally would include information on 
assets owned by an individual (such as a veliicle or a firearm) . In a few 
cases there were reports on specific financial transactions engaged in by 
individuals. Additionally, as noted above (see section I, Introduction), 
information on the activities of an exempt organization discussed in 
an FBI report could be relevant to whetlier the organization was en- 
titled to an exemption. 

Other documents often found in the SSS files contained information 
regarding the subject's history of filing tax returns and paying taxes. 
Approximately 20 percent of the random sample of files examined by 
the staff contained such information. Generally, this information 
would include computer print-outs from the IRS Individual Master 
File, Business Master File, or Fx(>mpt Org;inizations IMaster File. 
Information supplied by the IRS indicates that the SSS made ap- 
proximately 5,000 requests for searches of tlie master files. Also, fre- 
quejitly information was received by the SSS from the Social Security 
Administration supplying an individual's Social Security number or 
supplying information concerning the wages of an individual subject 



55 

to Social Securit}^ taxes. (See section VI, Coordination with other 
Government Units. ) 

The business, individual, and exempt organizations master file print- 
outs contain information on which returns have been filed, wdien they 
were filed, the amount of a tax paid, whether the taxpa3^er had been 
audited, and any tax balances payable by or to the taxpayer. For in- 
dividuals, the master file print-outs also include amounts of income 
reported and deductions claimed for each year and the number of 
exemptions claimed. 

The SSS files occasionally contained other financial information, 
such as summaries of subjects' checking account transactions, informa- 
tion relating to specific financial transactions, and contribution lists 
of organizations. This information was obtained from a variety of 
sources, including congressional committee files, reports of lES field 
personnel (such as an Intelligence Division report on an organization 
and its members), referrals of congressional and public complaints 
from the National Office, and FBI reports. The files also occasionally 
contained tax returns. The SSS records sliow that tax returns were 
requested on 86 individuals and 120 organizations. 

Slany of the files contained clippings from periodicals. The SSS files 
also contained correspondence, notes and memoranda concerning 
referrals by the SSS to the field and reports from the field to the SSS. 



VI. COORDINATION WITH OTHER GOVERNMENT UNITS 

Summary 

The SSS received information from a number of other Federal agen- 
cies, from congressional committees, and from some State and local 
agencies. As described in the section on Special Service Staff files, this 
information was used by the SSS as a source for establishing files and 
to augment previously-established files. 

Many of the SSS contacts with other agencies apparently were 
initially made on an informal basis by two SSS employees who had 
previously established their own associations in the intelligence com- 
munity. (One of these employees was detailed to the SSS from the 
Alcohol, Tobacco and Firearms Division of the Internal Revenue 
Service.^ The other employee had been detailed from the Service's 
Intelligence Division.) Formal contact also was established with 
other agencies; however, the initial informal contact of these 
employees seems to have been an important element iii tlie SSS 
coordination with other agencies and congressional committees. 

The most important sources of information for the SSS were the 
FBI and the Inter-Divisional Information Unit of the Department of 
Justice. Also, the Social Security Administration ^vas of substantial 
importance (although, of course, the SSS did not receive "intelligence- 
type" information from Social Security). The Departments of Army, 
Navy, and Air Force also provided the SSS with information. Other 
Federal and State agencies also aided the SSS, although to a much 
smaller extent. 

With respect to congressional committees, the House Internal 
Security Committee provided a significant amount of information to 
the SSS. The Subcommittee on Internal Security of the Senate Judi- 
ciary Committee and the Permanent Subcommittee on Investigations 
of the Senate Government Operations Committee also provided some 
information to the SSS. 

Most of this coordination with other government units involved the 
SSS receiving information. In addition, some information was pro- 
vided by the SSS to other government agencies and to congressional 
committees. 

Information Received hy the SSS from, Other Federal Agencies 

Federal Bureau of Investigation: — FBI reports apparently were 
the largest single source of information received bv the SSS, Duiing 
the period October 27, 1969, to November 30, 1973,^ the SSS logged in 
a total of 11,818 reports received from the FBI on individuals and 
organizations. Of that total, 6,607 reports were classified (as "confi- 
dential", "secret", or "top secret") and the remaining 5,211 were un- 
classified. Other information in the SSS administrative files indicates 
that the SSS received 700 to 800 other FBI reports before Octo- 
ber 27, 1969. 

^ On July 1, 1972, AT&F became a separate Treasury bureau. 

(57) 



58 

These reports were sent to the SSS both because the FBI decided 
the SSS would be interested and because of specific requests for 
reports from the SSS. While most FBI reports went directly to the 
SSS, a few of these reports were sent by the FBI to another IKS 
branch, sucli as the Intellio^ence Division (which had a preexisting 
arrangement to receive FBI reports), and these reports were for- 
warded to the SSS where the receiving branch believed that they were 
pertinent to the work of the SSS. 

On August 8, 1969, Assistant Commissioner (Compliance) Donald 
Bacon wrote J. Edgar Hoover, Director of the FBI, to request 
that the SSS be placed on the FBI dissemination list for information 
relating to "various organizations of predominantly dissident or ex- 
tremist nature and/or people prominently identified with those orga- 
nizations.'' The staif has found no formal reply from Hr. Hoover, 
but after this letter was sent, the SSS began receiving substantial num- 
bers of FBI reports. According to a letter to the staff from FBI Direc- 
tor Clarence Kelly, the dissemination of the FBI reports to the SSS 
was approved personally by J. Edgar Hoover. Also, the staff was told 
that in early August 1969 SSS employees met with IRS personnel to 
discuss the SSS objectives. 

The SSS maintained continuing coordination with the FBI. The 
staff was told by a former SSS employee that SSS employees often 
telephoned the FBI for information, and FBI couriers bringing re- 
ports were in the SSS offices almost daily. 

The SSS files show that it received numerous reports which were 
sent by the FBI without receiying a request from the SSS for infor- 
mation on the individuals or organizations involved. Paul Wright 
and Donald Bacon told the staff that they believed that under 
FBI policy the SSS could not destroy FBI reports which it did not 
find useful. Therefore, these reports were added to the SSS files. In 
addition, the SSS frequently requested FBI reports on specific indi- 
Adduals or organizations-. The files examined by the staff contain num- 
erous FBI reports that were noted as sent pursuant to an SSS request- 
It appears that the SSS would request FBI reports on individuals or 
organizations named in other sources used by the SSS (such as publi- 
cations, the Justice Department civil disturbance lists, etc.). 

According to SSS records, during early June 1970, the SSS received 
from the FBI a list of approximatelv 2300 or.<ranizations catecrorized 
by the FBI as "Old Left." "New Left," and "Riffht Win£r." Addition- 
ally, SSS records show that in June 1971, the FBI sent the SSS a list 
of all known underground newspapers in the United States; an SSS 
report stated that on receiving this list the SSS made a special ex- 
amijiation of these newspapers and their editors. 

The FBI also provided the SSS with information about demonstra- 
tions scheduled to take place at Internal Revenue Service installations, 
nnd the SSS passed this information along to other divisions in the 
Sei'vire. For example, according to a memorandum of March 12, 1970, 
from Paul Wriglit to Donald Bacon, the FBI sent the SSS a report 
rcfrarding demonstrations planned for April 15, 1970, at various IRS 
offices and installations. Also, in April 1973, the SSS was advised of 
planned demonstrations at the Internal Revenue Service National 
Office. 



59 

Inter-Divlslooial Infomiation Unif^ Department of Justice. — The 
Department of Justice Inter-T)ivision.i] Information Unit^ (IDIU) 
furnished the SSS a computerized list of individuals considered to have 
a potential for civil disturbance. This list Avas called the "Subject 
Data" list by tlie Department of Justice. According to former SSS 
employees, an SSS clerk went through this list alphabetically, and 
prepared tiles on individuals named in it if the SSS did not already 
have a file on that person. (See section V.) 

The Subject Data list provided the SSS with the names of in- 
dividuals who were considered to have a potential for civil disturbance. 
Also, the list often provided the individual's date of birth, which' was 
vital for the SSS to obtain the individuaPs Social Security number. 
Upon obtaining the Social Security number, the SSS coiild readily 
check the IRS master files in order to review the individual's tax 
status. ' 

Another computerized list, called the "Incident Data"' list, was 
also provided to the SSS by the Department of Justice. The Incident 
Data list dealt with events of civil disturbances (arranged geo- 
graphically and by date) and, according to a former SSS employee, 
was used l3y the SSS more for background information than for 
establishing specific files.^ 

In his staff interview, a former SSS analyst said that he learned of 
the Department of Justice civil disturbance list in talking with em- 
ployees of the Criminal Division of the Department of Justice. This 
employee said that he then met informally with IDIU people and asked 
that copies of the lists be provided the SSS. The SSS records show 
that the SSS obtained possession of the Subject Data list (containing 
about 10,000 names) from the Justice Depai'tment on August 26, 1969. 
Additionally, an SSS memorandum stated that on October 9, 1969 
an SSS employee was given a copy of the Incident Data. list. This 
memorandum stated that these lists were obtained by the SSS on a 
"loan basis." 

The "loan" of these lists to the SSS seems to have occurred 
on an informal basis ; the staff has not found any correspondence or 
memoranda between the Internal Revenue Service and the Justice 
Department regarding the transfer of this material. James De vine 
(formerly head of the IDIU) told the staff that he did not recall who 
authorized providing the IDIU civil disturbance lists to the SSS. 
Jerris Leonard (formerly Assistant Attorney General, Civil 
Rights Division, to whom Mr. Devine reported as head of the IDIU) 
told the staff lie did not know that the SSS received a copy of the 
IDIU list.* 

The Justice Department also maintained a master computer tape 
file and master tape format from which the Department of Justice 
lists were prepared. A draft letter to the Attorney General was pre- 
pared within the Service requesting this tape file and format. How- 

^ Later, part of the Department of Justice Internal Security Division. 

^ These lists are described in Federal Data Banks and Constitutional Rights, Staff of the 
Rubcomm. on Constitutional Rights, Senate Coram, on the Judiciary, 93d Cong., 2d Sess., 
vol. 4 at 2208 et seq. (Comm. Print 1974V. 

* In a letter of June 5, 1974, to Senator Sam J. Ervin, Jr., Attorney General William B. 
Raxbe said that "v/ith the exception of the printout loaned to the Internal Revenue Service, 
there is to our knowledge no other knotvn instance of dissemination [of the IDIU lists] 
outside the Department of Justice. . . ." (However, the staff has been informed that a 
printout of the lists was given to the Central Intelligence Agency as well.) 

52-219—75 5 



60 

ever, it appears that the letter was never sent, and that the SSS did 
not receive a copy of the tape file or format. 

On September"20. 1971, two employees of the SSS obtained from 
the Department of Jnstice a revised Subject Data list, which included 
the names of approximately 16,000 individuals. SSS files were there- 
after prepared on the basis of the information contained in the new 
list. It appears that no revised Incident Data list was ever obtained 
by the SSS. 

Aside from obtaining the civil disturbance lists, the staff has found 
evidence of relatively little contact between the SSS and the Inter- 
Divisional Information Unit of the Justice Department. However, 
after many of the functions of the IDIU were taken over by the 
Analysis and Evaluation Section of the Internal Security Division, 
Department of Justice, two employees of the Analysis and Evaluation 
section met on March 26, 1971, with SSS representatives. At 
this meetinc: the functions of the two organizations were explained 
and possibilities of increased cooperation were explored.^ The IRS and 
Justice Department memoranda of tliat meeting indicate that the 
Justice Department was to furnish the SSS with a list of radical indi- 
viduals in which the Justice Department was most interested, but it 
appears that no list was ever in fact transmitted. The memoranda also 
indicate the SSS was to furnish information to the Internal Security 
Division on an informal basis. However, the staff has found no evi- 
dence that indicates this was ever done. 

In what appears to be an isolated incident, an SSS memorandum 
states that an SSS employee went to the Internal Security Division 
during November 1971, to study the information in the Division's 
files on two taxpayers. The SSS interest in these taxpayers apparently 
was sparked by a request by the Justice Department for tax informa- 
tion on these taxpayers. (See below for a description of informa- 
tion provided to the Department of Justice.) Eventually, a $28,818 tax 
assessment was made against one of the taxpayers, and it appears that 
this assessment may have been aided by the information obtained by 
the SSS from the Department of Justice. 

IrnTnigration and Naturalization Service. Department of Justice. — 
In one case, the SSS files indicate that the SSS contacted an employee 
of the Immigration and Naturalization Service (INS) for informa- 
tion on the United States itinerarj^ of a nonresident taxpayer. The 
Internal Revenue Service subsequently collected $13,076 in taxes 
from this taxpayer's spouse, but the staff could not determine whether 
the collection was aided by the information supplied by the INS. 
The staff' found no other cases of cooi^eration between the SSS and 
the INS. 

Bureau- of Narcotics and Dangerous Drugs, Department of Jus- 
tice.— Accovdmcr to SSS records, in late October 1969, SSS staff mem- 
bers met with representatives of the Bureau of Narcotics and Dan- 
gerous Drugs and "complete cooperation'' was promised. However, the 
staff has found no information on further coordination between this 
Bureau and the SSS. 

"iThpro wns also fon+act between the Internal Security Division and the SSS regarding 
national security cases", described below. 



Gl 

Social Secmity Administration. — The Social Security Adminis- 
tration was possibly the most practical contact of the SSS in terms 
of providing information that aided in the collection of taxes. 
Apparently tlie SSS began using the Social Security Administration 
on the suggestion of an SSS employee who previously had obtained 
information from Social Security while he had worked in the Collec- 
tion Branch of the lES. Upon transferring to the SSS, this employee 
was able to initiate SSS coordination with Social Security by contact- 
ing the same Social Security Administration employee he had con- 
tacted while working in the Collection Branch.^ 

After identifying an individual and his birth date, the SSS could 
ask the Social Security Administration for that individual's Social Se- 
curity number. Also, if it had the individual's Social Security number, 
the SSS could request the names of that individual's employers and 
the wages (subject to Social Security taxes) the individual had earned 
during the previous three calendar years. Additionally, if the SSS had 
an employer's identification number, it could request for any three- 
month period the names of the employees of that employer, the Social 
Security numbers of those employees, and the wages paid each em- 
ployee by tiiat employer. Counting all three types of requests, SSS 
records show that the SSS made a total of approximately 3,843 re- 
quests for i}iforma(ion from the Social Security Administration. 

The Subject Data "civil disobedience" list supplied to the SSS by 
the Department of Justice often provided the date of birth along with 
the name of an individual. With this information, the SSS could re- 
quest the individual's Social Security number from the Social Security 
Administration. 

After receiving tlie Social Security nuniber, the SSS could check the 
individual's tax record through the Internal Revenue Service Individ- 
ual Master File. The SSS could then check its own files for any indi- 
cation that the individual had received income which he had not re- 
ported, or for other types of financial information which Tiiight be in- 
consistent with his tax records, such as deductions, claimed. 

SSS records show that the SSS made about 2,968 requests for Social 
Security numbers. The requests were sent to the Division of Reporting 
and Accounting Methods of the Social Security Administration. By 
informal agreement with the Social Security Administration, the SSS 
was limited to sending requests on not more than 100 individuals per 
week since otherwise the SSS might have submitted more requests 
than the Social Security Administration would have been able to 
handle.^ 

If the IRS Individual Master File showed no record that the in- 
dividual had filed tax returns, the SSS could ask the Social Security 
Administration for the names of that individual's employers for the 
previous three years, the addresses of those employers, and record of 
wages (subject to Social Security tax) the individual had earned in 
that period. (If the information received from the Social Security Ad- 
ministration indicated that the individual had received taxable income 
but had not filed a return for the period in question, the SSS often 

6 In general, disclosure of Social Security information is permitted to any Treasury Depart- 
ment employee charged with administration of Federal income or employment tax laws 
but only for the purpose of such administration. Social Security Act, 42 ^"l306 • 20 C F r' 
§ 401. 3(d), 401. 3(i)(l). j , » , v..r.xv. 

■^ The staff was informed that this informal limitation was arranged with the Social Secu- 
rity Administration by the SSS employee who had suggested the use of this information. 



a2 

would initiate a field referral to collect unpaicl taxes.) The SSS sent 
requests for this wage information to the Division of . Earnings Sys- 
tems of the Social Security Administration. The number of these re- 
quests was restricted by an informal agreement to no more than 25 
individuals, weekly, to avoid overburdening the Social Security Ad- 
ministration, SSS records show that about (25 of these requests were 
submitted by the SSS. 

The SSS also received the history of wages (subject to Social Secu- 
rity tax) paid by an employer during a designated quarterly period. 
This information included the amount of taxable wages paid to each 
employee and the Social Security number of each employee. Except in 
cases of certain types of tax-exempt organizations, with this informa- 
tion the SSS could determine whether the organization had paid Social 
Security taxes and withholding income taxes for its employees,, and 
whether the organization was filing the required employment tax 
forms. Also, this information could give the SSS information on the 
scope of the organization's operations and the extent of its financial 
capabilities, and could identify the individuals employed by th& orga- 
nization. (In one case examined by the staff, this request was used to 
obtain inform.ation which was the basis for checking the tax filing 
records of all employees of a left-wing "radical" organization.) The 
SSS submitted approximately 150 requests for this type of informa- 
tion ; these requests went to the Division of Earnings Systems of the 
Social Security Administration, 

Departnient of the Army. — SSS memoranda state that after pre- 
liminary informal discussion between an SSS staff member and staff 
members of the Counterintelligence Analysis Branch of the Office of 
the Assistant Chief of Staff for Intelligence, on October 7, 1969, the 
SSS acquired two documents compiled by Army military intelligence 
regarding civil disturbance and dissidence.^ According to notes of an 
SSS employee, the first document discussed target cities of civil dis- 
turbance groups, the organization of these groups, and "personalities 
of interest" (including personalities that might be instrumental in 
combating civil disturbance) .^ The second volume was more concerned 
with the socio-economic causes of civil disturbance. 

SSS records show that on October 10, 1969, the first document was 
returned to the Army and that on January 16, 1970, the SSS obtained 
two new volumes from Army counterintelligence. These two volumes 
appear to contain the same type information as Avas in the document 
returned on October 10, 1969. The first of these new volumes discusses 
"cities and organizations of interest," while the second is concerned 
with personalities. These two volumes were dated October 15, 1969,^^ 
It is not clear whether the SSS used the Army information as the 
basis for opening files on individuals or organizations. Staff inter- 
views with a former SSS employee indicated that SSS employees 
occasionally referred to these documents for additional information 

\aV^}^^ '^Z'^/^'.*!? ♦^i'"*^*" some references to contacts with Department of Defense intelli- 
ment of Defln'.M^ Wnw ""i^^^S.'' ^}^l \^^ Department of the Army, etc.. within the Depart- 
l^formnt^n S't^o n'^'^f '.*^^ ^^^^. has found no information that the SSS received any 
as dp^crfbed befo^) -^"^^"^^ Department (as opposed to the Army, Navy, and Air Force. 

\rm^v\nrvenViL!"«''/rT'?V-° Constitutional Rights of the Senate Comm. on the Judiciary. 
" Ilthon^h ;hrA Civilians, S Doc. No 79-911, 92nd Con-. 2d Sess. 9 et seq. (1972). 
had mrticWertIn tn.L^r,°°P*'''''*.f ' V^^ ^^""^ was unable to contact the Army personnel who 
iiaa participated in turning over the two documents to the SSS. 



63 

regarding organizations and individuals on wliicli files liad been 
established. 

Tlie SSS files also show an instance of additional contact between 
the SSS and the Army where an SSS employee discussed two taxpay- 
ers (a former Army lecturer and a Congressman) with a member of 
the xirmy counterintelligence staff. In this case, the SSS appears to 
have tried to learn of the Army's attitude toward those individuals. 

In another situation, the SSS requested and received information 
from tlie Counterintelligence Analysis Branch of the Office of the As- 
sistant Chief of Staff for Intelligence on a specifi^c organization gen- 
erally, considered to be "anti-war." (Later, the tax exemption of this 
organization was revoked by the IRS ; however, it is not clear whether 
the, information received from the Army was instrumental in this 
action.) 

The SSS records also state that contact was made in late 1969 with 
the Provost Marshal General's Office of the Department of the Army, 
and that the cooperation of that office was promised. However, the 
staff has fomid no further evidence of coordination with that office. 

DeparUneat of the Navy. — SSS records show that on October 30, 
1969, the Director of the Naval Investigative Service provided the SSS 
with two publications. One of these publications described a specific 
Vietnam war protest event, the organizations involved, and action 
taken by military authorities with respect to the individuals protest-' 
ing. The other publication described in general the "radical movement'' 
directed against the military, emphasizing a number of organizations. 
The staff was unable to determine for what purposes SSS employees 
used these books. 

DepaHment of the Air Fore*?.— SSS. records show that by No- 
vember 3, 1969, the SSS had established informal contact with the; 
Criminal, Investigations Division and the Counterintelligence Divi- 
sion of the Directorate of Special Investigations of the U.S. Air 
Force* , 

On December 4, 1969, Donald Bacon, Assistant Commissioner 
(Compliance) wrote to Colonel Heston C. Cole, Directorate of Special 
Investigations, U.S. Air Force, to request that the SSS be placed on 
his organization's list for dissemination of information regarding 
dissident organizations and individuals. Colonel Cole agreed to this 
request in a letter dated December 17, 1969. 

The. staff' has. not found any information that shows that the SSS 
received information fi'om the Air Force on a regular basis. How- 
ever, SSS records state that Air Force Intelligence furnished the SSS 
vrith information on the solicitation of funds by four anti-war organi- 
zations; the SSS also received general information about one other 
anti-war organization. 

Secret Service. — On January 26, 1970, Commissioner Randolph "W. 
Thrower wrote Secret Service Director James J. Rowley to request 
the Secret Service's master computer tape file and tape format on 
individuals identified with various militant and subversive organiza- 
tions. The Secret Service did not provide the SSS with the tape file, 
but according to a former SSS employee, offered to provide the SSS 
with file information on an individual basis. However, the staff has not 
found any case where the SSS asked the Secret Service for informa- 
tion on any particular individual. 



64 

Depart'ment of State. — According to SSS files, the SSS received 
information in 1969 on one "radical" organization from an employee 
of the Agency for International Development, Department of State. 
It appears, however, that the individual who supplied the information 
may have been acting more as a private citizen than as an employee 
of the State Department. 

Information Received From Congressional Committees 

Permanent Subcommittee on Investigations of the Senate Com- 
mittee on Government Operations. — ^^There were several early contacts 
between the SSS and the Permanent Subcommittee on Investigations. 
On July 29, 1969, the staff of the SSS, along with other IRS personnel, 
met with three investigators of the staff of the Permanent Subcom- 
mittee. The minutes of this meeting state that the Permanent Subcom- 
mittee staff' members offered to aid the SSS, subject to the approval 
of the Chairman of the committee. (See section III, Formation of Sep- 
cial Service Staff.) On August 1, 1969, Commissioner Thrower wrote 
to Senator John L. McClellan asking that SSS staff members be 
fillowed to inspect Permanent Subcommittee files. Pei'mission was 
granted by Senator McClellan in a letter of August 8, 1969. 

In addition, 22 of the original 77 organizations which were the 
subject of SSS inquiry were also the subject of an investigation by 
the Permanent Subcommittee. (See section V, Special Service Staff 
Files.) 

SSS records also show that by early September 1969, the Permanent 
Subcommittee staff had helped the SSS in developing working arrange- 
ments for the SSS staff to review files of the House Internal Security 
Committee. 

There does not appear to have been much later contact between the 
SSS and the Permanent Subcommittee (although the SSS used the 
published hearings of the Permanent Subcommittee). Philip Manuel 
(Chief Investigator for the Permanent Subcommittee) told the staff 
that although SSS personnel were authorized to inspect the Perma- 
nent Subcommittee's files, they did not in fact do so. 

Internal Security Subcommittee of the Senate Judiciary Commit- 
tee. — SSS records show that during 1969 and 1970 the SSS reviewed in- 
formation from the Senate Internal Security Subcommittee on 12 orga- 
nizations and 4 individuals. These contacts apparently continued 
through late September 1970. 

The staff has found no evidence that SSS employees were formally 
authorized to inspect this Subcommittee's files, but a former SSS em- 
jDloyee told the staff that he visited the Subcommittee to look through 
its files on one occasion for information on one particular subject of 
investigation. 

House Intermd Serurity Committee. — The relationship between the 
SSS and the House Internal Security Committee apparently was de- 
veloped on an informal basis, through personal contact. (As noted 
above, the SSS was "introduced" to the Committee by the Permanent 
Subcommittee on Investigations staff.) 

_ The House Internal Security Committee furnished the SSS with a 
significant amount of information. SSS records show that it regularly 
received information from this committee on specific organizations 
from the fall of 1969 through 1971. Former SSS employees have told 
the staff that these contacts also continued after 1971. 



65 

According to an SSS report, by the end of 1970, the SSS had been 
allowed direct access to the Committee's library files, and this made it 
easier for the SSS to secure information from the Committee. 

The SSS made photocopies of Committee card files on specific indi- 
viduals and organizations. An alphabetical file of this information was 
maintained in the SSS offices, and the information also was added to 
SSS files on individuals and organizations. In some cases, it appears 
that information received from the Committee was used to start a file 
on an individual or organization. 

A typical Committee card on an individual would show his name, 
address, the name of the organizations to which he belonged, and a 
reference to a magazine article or other source that caused the card to 
be prepared by the Committee. Information received from the Com- 
mittee inclu.ded identification of leaders of "radical" organizations, 
accounts of the travels and discussions of those leaders, and financial 
information on the organizations and their leaders, such as sources of 
funds and bank records (including bank deposits and cancelled 
checks). 

The SSS records also state that the SSS made arrangements for a 
Revenue Agent from Chicago to inspect the Committee's records on 
one "radical" organization. 

As described below, the SSS provided and received "substantial as- 
sistance" (in the terms of an SSS report) from the Committee on one 
prominent anti-war organization in an exchange of information on 
this organization. 

Siibcoinmittee on FounfJofiovs of the House Select Small Business 
Committee. — Although SSS personnel were authorized (in a letter 
dated October lo, 1969. from Chairman Wright Patman to Acting 
Commissioner William H. Smith) to review files of the Subcommittee 
on Foundations of the House Select Small Business Committee, the 
staff has not found any evidence that indicates the SSS received any 
information from the Subcommittee. 

Information Received From. State and Local Governm,ents 

Shortly after the SSS was established, two SSS staff m.embers 
went to California to establish contact with State and local officials. 
SSS reports state that these employees met with IRS intelligence 
officers in Los Ane,'eles, Oakland, ancl San Fi-ancisco, and with repre- 
sentatives of the California Department of Justice and the Criminal 
Division in the United States Attorney's Office for the Northern Dis- 
trict of California. In his iiiter^'iew, a former SSS employee indi- 
cated that thev also met with local officials in Denver, Colorado, In 
reviewing the SSS files, the staff found somp information from a Cali- 
fornia law enforcement official about a California resident. However, 
it is not clear whether this information was i-eceivecl as a consequence 
of the SSS staff trip to California or whether it was received 
indepencleutly. 

The staff was also told bv a former SSS employee that tho SSS 
established contact with State and local law enforcement officials in 
several Southern states on behalf of the SSS. It is not clear, however, 
whether any information was received by the SSS as a result of these 
contacts. 



66 

Information Provided to Other Government Agencies and Congres- 
sional Committees -^ 

The Special Service Staff gave assistance to a number of Govern- 
ment offices, but these contacts were nowhere near as nmnerous as those 
i]i which it received aid. 

Department of Justice. — Information was provided the Depart- 
ment of Justice through SSS activities involving "national security 
cases." A national security case involved a request hj the Internal Se- 
curity Division of tlie Department of Justice to the IKS for co23ies of 
tax returns "'in cooperation with an official matter before this office 
involving a matter I'elating to the Internal Security of the United 
States.'' (The Internal Securit}- Division itself might want this tax 
information, or it might inquire on beliaif of the Federal Bureau of 
Investigation, which, not being an independent agency, was not au- 
thorized to obtain tax returns on its own behalf.) 

Generally, the IKS would respond to a request for tax returns in a 
national security case by sending the information requested to the 
Justice Department (pursuant to sec. 6103 of the Code). In addition, 
if there was no recorcl of the requested returns having been filed, the 
IKS would ask the field to begin a delinquency investigation to secure 
the returns in question. In his staff interview, Donald O. Virdin 
(formerly Chief of the Disclosure staff) said the practice of beginning 
a delinquency investigation on national security cases dated back t-o 
the 1950's. 

National security case requests for tax returns all went to the Dis- 
closure Branch of the IRS Compliance office. In addition, according 
to information from the IKS, beginning on June 16, 1970, all In- 
ternal Security Division requests for tax returns were sent to the 
SSS from the Disclosure staff. The staff was told that the procedure 
was changed to include the SSS because of the greater information 
available to it regarding some of the subjects of national security case 
requests, and because it appeared that the field responded faster to a 
request for tax returns from the SSS than from the Disclosure 
Branch. 

The staff was told by a former SSS employee that each time a 
national security case was routed to the SSS a new SSS file was pre- 
pared on the individual or organization that was the subject of the 
request, if a file did not already exist. The IKS has stated that 99 
national security requests Avere received from the Internal Security 
Division during 1969 through 1973.^- However, the exact number of 
national security cases is uncertain.^'' 

The staff' determined that the SSS had files on all but three of the 
subjects of these national security case requests. (These three sub- 

^■^ Bection 0103 of the Code governs the clisclof5ure of tax information outside the IRS. 
Sep also Ti-ens. Reg. § 301.6103. 

'- March 5, 1974. letter to Senator Sam J. Ervin, Jr., from Commissioner Donald C. 
Alexander, reply to interrogatory 35. 

"The Special Service Staff and the Disclosure Staff apparently did not differentiate be- 
tween requests formally described as national security cases and other requests for tax 
return inspections received from the Internal Security Division. In a letter of Febrnarv 1, 
1974, to Senator Sam T. Krvin, Jr.. Assistant Attorney General Henry Petersen has stated 
that only 4S national security case requests were submitted to the Internal Revenue Service 
during 1971 and 1972. For this period, the Internal Revenue Service has stated that it 
received 70 requests for inspections of income tax returns from the Internal Securitv 
Division. (March 5. 1974, letter from Commissioner Donald C. Alexander to Senator Sam 
.J. Krvin, .Tr., answer to interrogatory 35.) The staff investigation of the IRS files indicated 
(7 requests were filed in that period. 



67 

jects included two individuals and one organization and were named 
in tlie same Internal Security Division request.) 

Additionally, 18 requests for delinquent tax returns were made to 
the field by the SSS with respect to individuals and organizations 
named in national security case requests for tax information. Tax 
returns have been collected in 5 of these cases and were furnished by 
the IKS to the Internal Security Division. As to the other requests, 
some of the subjects could not be located and some are involved in 
cases which are still open. 

As noted above, on March 26, 1971, staff members of the SSS met 
with two employees of a new section in the Internal Security Divi- 
sion (ISD) called the Analysis and Evaluation Section. The two 
groups discussed possible avenues of cooperation. IRS and Justice 
Department memoranda of this meeting state that the SSS agreed to 
arrange for someone with accounting expertise to look over records 
of a militant group available to the Justice Department ; this arrange- 
ment was subsequently made. In addition, the Justice Department 
memorandum of this meeting indicates that the SSS agreed, subject 
to the approval of the Assistant Commissioner (Compliance) to pro- 
vide the ISD with a list of extremist individuals. In his staff inter- 
view, a former ISD employee who was at that meeting said that no 
list was ever given to ISD. The staff has found no evidence to the 
contrai-y. The staff was told that several copies of magazine articles 
were given to ISD b}^ the SSS. (Similarly, a list of individuals was 
promised by ISD to the SSS, but apparently was never delivered.) 

In other isolated instances, information was supplied to the 
Justice Department by the SSS. An SSS report of July 1971 states 
that assistance was given to a Department of Justice attorney on 
an anti-war taxpayer and on a "radical" organization. So far as the 
staff has been able to determine, the information given to the Justice 
Department on that occasion was related to the question of whether 
the organization was entitled to its tax exemption, which was a ques- 
tion the IE S was investigating at that time. xVdditionally, an SSS 
file memorandum reports that on September 17, 1973, a Justice em- 
ployee checked the SSS files on an anti-war organization. 

The SSS also sent to the Justice Department information on alleged 
postal violations allegedly committed by two organizations. These al- 
leged^ violations were discovered by SSS employees in the course of 
their investigation of these organizations. 

Federal Bureau of Investigation. — A list of contributors to a "left 
wing extremist" organization may have been given to the FBI by the 
SSS, and then transferred to the White House. (See Communications 
with the White House., below.) 

On January 3, 1972, former FBI Director J. Edgar Hoover wrote 
the SSS to alert it to a possibility of tax evasion by a Black militant 
individual. In this letter Mr. Hoover asked to receive the results of any 
action taken by the IRS with regard to this individual. Although an 
FBI report also sent to the SSS contained evidence of tax evasion, the 
SSS files reviewed by the Joint Committee staff' do not indicate that 
the SSS initiated a field referral with respect to this individual. 

Secret Service.— An SSS report of July 1971, states that the SSS 
gave assistance to the Secret Service with regard to a member of a 



68 

Black militant organization. A former SSS employee told the staff 
that a Secret Service employee inspected the SSS files on tlie individ- 
ual and the organization. 

Department of the Navy. — According to SSS records, in December, 
1969, the Naval Investigative Service sent the SSS information on two 
AWOL sailors who had operated a money-changing operation in 
South Vietnam. The SSS records indicate that thereupon the SSS 
turned over its "entire file'' on these individuals to the Naval Investiga- 
tive Service. 

House Inteimal S>ecurity CoTuvmittee. — A former SSS employee told 
the staff that a House Internal Security Committee employee ex- 
amined SSS records on 30 individuals and organizations. This inspec- 
tion may have been pursuant to Executive Order No. 11465, dated 
April 10, 1969, allowing that committee staff to inspect IRS records. 

An SSS report of June 1, 1971, records that "identifying assistance" 
and other information regarding an anti-war group had been furn- 
i^^lied the Committee. SSS reports of Se]3tember 1971. show that the 
SSS had continued to exchange information with the House Internal 
Security Committee regarding the funding of an anti-war group. One 
report dated September 29. 1971, states that the SSS had given the 
committee "substaiitial assistance . . . from onr files which was not 
classified nor covered under disclosure statutes." 

State and local qo^'erviments. — As discussed above, two SSS em- 
ployees communicated with State and local law enforcement officials in 
California and in the South. According to staff interviews, coordina- 
tion with these units was apparently established with the understand- 
ing that infoimation would be exchanged by both sides. The staff also 
was told that a former SSS employee made arrangements to "ex- 
change" information with State and local law enforcement agencies, 
but that no tax-related information was disseminated by the SSS. 

C omimmicatlons With, the White House 

S vm ma ry.— There is some evidence that, after the formation of tlie 
SSS, there were inquiries to Roj?er V. Barth (formerly Assistant to 
the Commissioner) from the '\^niite House regarding the specific 
organizations. Additionally. Mr. Barth made some inquiries regard- 
ing specific organizations to the office of the Assistant Commis- 
sioner (Compliance) which were answered by the SSS. However, the 
staff has not found any evidence that ties these White House inquiries 
on SDPcific organizations to the inquiries from Mr. Earth that went to 
the SSS. In one case, information on contributions to a "left-Aving 
evtrP7nist" organization went to the FBI from the IRS. and then from 
the FBI to the White House. The SSS was involved in this transfer 
of information to the Wlnte House. 

In September 1970, Randolph Thrower, then Commissioner of 
Internal Revenue, reported to the White House in response to an 
iynuiry from Tom Charles Huston regarding the activities of the 
SSS in general. This renort did not deal with anv specific individuals 
or organizations. J^'l'r. Huston has told the staff that he forwarded 
tliis.renoi;t to Mr. H. R, Haldeman, and thereafter he heard nothing 
from Mr. Haldeman on the issue and did nothing more with respect 
to this nativity of the IRS. 

Mr. Huston also has told the staff that he did not talk with people 



69 

in other executive agencies, such as the Department of Justice (or the 
FBI) to encourage them to help the IKS with respect to the SSS. 
Additionally, Mr. Huston has told the staff th*t he did not talk with 
the Internal Revenue Service about the SSS (or about the Service, in 
general) in regard to the report of the Interagency Committee on 
Intelligence (the "Huston Plan'') . 

Inquiries from the White House to Roger T . Barth regaxding spe- 
cific org ari'haf ions. — Roger V. Barth told the staff that between the 
summer of 1969 and the summer of 1970 he had perhaps three or 
four conversations with Tom Charles Huston about specific exempt 
organizations. Mr. Barth said that Mr. Huston might read an 
article about an organization engaging in certain activities, and he 
would ask Mr. Barth how this type of organization could be tax- 
exempt. Mr. Barth said he recalled giving some information to Mr. 
Huston about these organizations, but did not recall any specific inci- 
dent. However, Mr. Huston told the staff' in his interview that he be- 
lieves that between July 1969 and September 1970 he did not have any 
contact with Mr. Barth. (Zvlr. Huston also told the staff he has never 
seen a sensitive case report from the IRS, and has never seen a Dros-- 
ress report from the SSS other than the report of Randolph W. 
Thrower to him of September 19, 1970, discussed below.) 

Paul Wright told the staff that he had never heard of Tom Charles 
Huston until the Watergate hearings occurred, Mr. Wright said that 
while he was with the SSS he never received an inquiry from the 
White House. 

Information furmshed to Roger V. Barth hy the SSS. — A memo- 
randum of February 4, 1970, from Paul Wright to Roger V. Barth 
included information on organizations of the "extreme left" and 
"extieme right.'' The memorandum gave one sentence descriptions 
of each of ten organizations, and did not include any information on 
the tax status of these organizations. In his interview, Mr. Barth told 
the staff he did not know why he had asked for the memorandum and 
did not know what he did with the infonnation he received. 

The SSS files contain a memorandum from the Assistant Commis- 
sioner (Compliance) to the Acting Commissioner, Attention Roger 
y. Barth, dated August 2, 1971. This memorandum deals with a Black 
religious organization, and describes the history of the IRS investiga- 
tion of this organization. The memorandum also states that the in- 
formation will be used to brief the Secretary of the Treasury. In his 
interview, Mr. Barth said that he recalled the case but did not recall 
why he discussed it with the Secretary of the Treasury. Mr. Barth 
said that Secretary Connally may have been interested in the case 
because it had been goin^ on for some time (see below). 

In March 1972, classified FBI material regarding a "left wing 
radical" organization and an iu dividual associated with it was sent 
to Mr. Barth from the SSS. This information was returned to the 
SSS by Mr. Barth about three months later. In an affidavit dated 
November 12, 1973, JMr. Barth stated that he asked another IRS 
eniplovee to review this file for him. It aD]:)eai's that this employee was 
provided the FBI reports from the SSS files, along vfith other mate- 
rial reviewed on this organization. In addition, Mr. Bai'th told the 
staff that this eniDlovee worked with the revenue agent examining 
this case. (Also, the SSS files indicate there was an unusual amount 



70 

of communication between the revenue agent examining this case and 
the SSS.) In his affidavit Mr. Barth stated that he reviewed the file 
on this organization because the sensitive case report about the orga- 
nization showed a substantial time lag in the case (the organization 
was then under audit) and that Secretary of the Treasury John 
Connally had complained about the time lag.^* Mr. Barth said that 
Secretary CJonnally also expressed concern with the amount of time an 
audit would take with respect to other cases as well. 

The SSS files also show that in October 1971 Mr. Barth inquired 
about a school considered to be "left wing," and as a consequence the 
SSS asked an employee of the Alcohol, Tobacco and Firearms Divi- 
sion (but formerly with the SSS) to compile a report on the organiza- 
tion. In his interview, Mr. Barth said he recalled talking with the 
xlssistant Commissioner (Compliance) about the organization, but 
does not remember why. 

In his staff interview, Tom Charles Huston said that he did not re- 
call making inquiries of the lES about any of the organizations dis- 
cussed above, or about a list of extreme right or extreme left wing 
organizations. (Mr. Huston left the White House in June 1971.) 

Infonnation on contnhvtions. — A memorandum for the file of 
April 8, 1970, by Donald O. Virdin states that Paul Wright of the SSS 
and Joe Hengemuhle of the FBI asked whether the FBI could furnisli 
the White House a list of contributors to a "left wing extremist" 
organization; the list previously had been furnished to the FBI by 
the IRS, Since Mr. Wright was involved in the inquiry, it seems likely 
that the information may have come from the SSS. Mr. Virdin's mem- 
orandum states that Leon Green approved the release of this informa- 
tion to the White House. 

Memorandum, to Tom Charles Tlvston of Septemher 10^ 1970.— 
On August 14, 1970, Tom Charles Huston of the White House staff 
sent a niernorandum to Roger V. Barth asking what progress had 
been made by the Compliance Divisions on reviewing the operations 
of ideological organizations. Mr. Huston told the staff that he believes 
he wrote this memorandum to Mr. Barth because at that time a 
certain foundation was being discussed in the newspapers, and Mr. 
Huston probably became "burned up" about this foundation.^^ 

About a month later (September 19. 1970). Randolph W. Thrower 
sent Mr. Huston a Status Report on the SSS (at that time called the 
Special Service Group). This was a report on the general activities of 
the SSS and did not deal with any specific individual or orsanization. 
On receiving the report, Mr. Huston sent it to Mr. H. R. Haldeman (on 
September 21, 1970). In a memorandum to Mr. Haldeman, Mr. Hus- 
ton said "You will note that the report is long on words and short on 
substance." Additionally, the memorandum said "Nearly 18 months 
ago, the President indicated a desire for IRS to move against leftist 



'•' Tlip staff understanrls that the audit of this orfranization took a iiunihPr of vpars : 
thp staff also undprstands that the exempt status of the organization was not revoked as 
a conxpqiiPnpp of this audit. 

'•"•A nipmorandiim to thp file of August 27, 1070. from Donald O. Virdin statps that the 
foundation "has beeome an pxplosivp issne" and that "Mr. Barth has met with Trpasurv 
offieials." In his interview, Mr. Barth said that he eonld recall lookinfr at thp foundation, 
thnt somehodv was interested in it at the time, nnd it was a "very hot issne". Mr. Bnrth 
tnld the staff that his recollection is that an inquiry would have been from the White 
House, not Treasury. 



71 

organizations taking advantage of tax shelters. I have been pressing 
IRS since that time to no avail." Mr. Hnston said in his staff interview 
that liis statement about "pressing the IRS" referred only to Mr. Hus- 
ton's participation in tlie June 1969 meeting with Mr. Thrower and 
Dr. Burns, and to Mr. Huston's memorandum of a few days later to 
Mr, Barth. (See section III, Fonnation of the Special Service Staff.) 
.Mr. Huston told the staff' that he heard nothing in response 
from ]Mr. Haldeman, but this was not unusual. Mr. Huston said that 
tlie September 19, 1970, memorandum to him from Mr. Thrower was 
the last contact he had with the Internal Revenue Service with resDect 
totheSSS. 

Interagency Committee on InteTligence^ etc. — In his interview with 
the staff, Mr. Huston said that on June 5, 1970, he began to work with 
the Interagency Committee on Intelligence. (The report of this Com- 
mittee is known as the "Huston Plan.") Mr. Huston told the staff that 
he did not talk with anyone at the Internal Revenue Service about 
what the role of the Service might be with respect to coordination of 
intelligence, because the Service and Treasury generally were con- 
sidered peripheral agencies with respect to intelligence. Mr. Huston 
said that he believes that no one talked with the Internal Revenue 
Service (or Treasury) about a possible Service role in a coordinated 
domestic intelligence review and evaluation procedure, unless someone 
from the FBI talked with people in the Alcohol, Tobacco, and Fire- 
arms Division (or the Secret Service) . 

Mr. Huston told the staff that he believes he did not talk with 
anyone in the Justice Department, Department of the Army, or in any 
other agency (including the FBI) about helping the Internal Revenue 
Service with respect to the activities of the SSS. Mr, Huston also said 
he does not recall suggesting to or asking the Department of Justice 
to ask the Internal Revenue Service for information on any person- 



VII. FIELD REFERRALS 

Sum'niary 

The SSS referred to the field for audit and collection activity a 
total of 225 cases concerning individuals and organizations in the SSS 
files. ( If husband and wife are counted separately, the i-ef errals total 
234. If additional known "communications" with the field are added, 
the total is 250.) The staff examined field office and SSS files for 149 
of these cases, or approximately 66 percent of the total (225) number 
of cases referred to the field. As between individuals and organiza- 
tions, the staff examined these files for 93 individuals and 56 organiza- 
tions. The staff generally did not examine the complete field files on 
cases in current collection or audit action, to avoid interfering with 
such action. 

It appears that SSS personnel would check centrally maintained 
IRS master files on a relatively systematic basis to see if individuals 
or organizations in the SSS files had filed required tax returns and 
(if filed) whether the returns indicated that an audit examination 
was appropriate. However, in the early stages, it appears that the 
SSS focused on one Black militant group (and individuals associated 
with the group) and also on one extremist left Vving group (and in- 
dividuals associated with that group). In at least one later situation, 
it appears that one group of organizations and associated individuals 
(underground newspapers and their editors) were given special at- 
tention by the SSS. 

It appears that generally field referrals were not made by the SSS 
without some consideration of tax-related information, and that a field 
referral generally would not be made unless there was some reason to 
believe that there might be a failure to comply with the tax laws. 
However, in some of the cases reviewed by the staff, the tax deficiency 
potential appeared to be marginal, based on the information contained 
in the file. iVlso, in some "national security cases" (described in section 
VI. Coordination With Other Government Units) it appears that the 
SSS may have made field referrals without checking an individual's 
wage (or other financial) records to determine if there was some evi- 
dence that a person who had not filed a return had taxable income.^ 
Also, in many cases a summary of non-tax backoround information 
from FBI reports was sent to the field, including an individual's 
activities sucli as speeches given, attendance at meetings, or demonstra- 
tions, etc. The background information also would include the indi- 
vidual's affiliation with Black militant groups, anti-war groups, or 
similar organizations. 

SSS field referrals were made in the form of a transmittal memo- 
randum with an attached information sheet and a recommended ac- 
tion, Initially (from August 1969, to June 1970) the transmittal 
memorandum indicated the field was to promptly take the action rec- 

1 Additionally, as described in section VIII. Field Referrals on War Tax Resisters. field 
referrals in "war tax resister" cases were made on a different basis than other referrals. 

(73) 



ommended by the SSS. Later, the form of the transmittal memo- 
randum was changed, indicating that the field should take the action 
it deemed appropriate. The field objected to the recommended action 
only in a few cases. The field generally would take action on and 
close a collection case in about six months from the date of referral ; 
an audit case could take somewhat longer. 

The reaction by the field may have been affected because of the re- 
quest by the SSS for a status rej)ort. Initially, the field reported to the 
SSS using sensitive case reporting procedures under which a report 
was required whenever there was a significant development, lir June 
1972, this procedure was terminated and the field was instructed to in- 
form the SSS of the results of any investigation. Then, in April 1973, 
quarterly status reports were required to be submitted to the SSS for 
each case initiated by it. 

In collection cases referred by the SSS, the field generally would 
attempt to contact the taxpayer and arrange for the filing of any 
required returns. In collection cases where no return was required, 
during at least one year the SSS recommended that the field secure a 
signed, witnessed statement that no return was required. This type 
statement was not generally required by the IRS. In audit cases 
referred by the SSS there would be an office audit or a field audit, 
as appropriate. In a number of collection cases referred by the SSS 
the field determined that the individual was not required to file a 
return. Similarly, in some audit cases an audit was not conducted 
because, after survey of the return, the field decided no revenue 
potential was apparent. 

In one case examined by the staff, the field objected to the recom- 
mended action because the District Director felt the recommendation 
discriminated against taxpayers associated with Black militant orga- 
nizations. In another case, the field refused to follow the recommended 
action because an audit would not be required of a similar community 
fund-raising organization and the noncompliance potential was mini- 
mal. However, refusal to follow an SSS recommended action was 
unusual. 

On the other hand, in one case examined by the staff, the revenue 
agent auditing the organization maintained frequent contact with 
the SSS, and the SSS provided information to the agent during the 
course of his examination of the organization. (This audit apparently 
began before the SSS field referral.) However, this extensive degree 
of communication directly with the field agent was not common. In 
most cases the only communication after a referral from the SSS to 
the field was one or more status reports from the field to the SSS and 
inquiries by the SSS to the field about the status of a case, where there 
had not been a status report for 3 to 6 months. 

At the time it was discontinued, the SSS had established files on 
8,585 individuals and 2,873 organizations. Approximately 800 of these 
cases were classified as "war tax resister" cases. According to infor- 
mation furnished the staff' by the Internal Ee venue Service, the SSS 
requested searches of Internal Revenue Service individual and busi- 
ness master files with respect to the filing status of 3,658 individuals 
and 832 organizations in the SSS files. In addition, the SSS conducted 
searches of the Internal Revenue Service exempt organization master 
file with respect to 437 organizations. 



75 

The SSS made field referrals on 136 cases involving individuals 
(145 if a husband and wife were counted separately) and 89 organiza- 
tions. Of the 225 total referrals made by the SSS, 176 initially were 
collection cases and 49 initially were audit cases ; however, there were 
later field transfers from collection to audit. Categorizing the individ- 
uals who were the subject of field referrals, 63 (of 136) appear to be 
primarily affiliated with Black militant groups. The next largest 
affiliation was 24 individuals primarily affiliated with anti-war groups. 
Additionall3^ of the field referrals there appeared to be the following 
primary affiliations: 13 individuals affiliated with student activist 
groups,"^ 10 affiliated with civil rights groups, 10 affiliated with left- 
Aving groups, 7 affiliated with right-wing groups, and 9 affiliated with 
other types of groups. 

With respect to organizations, 57 (of 89) field referrals related to 
organizations which were considered by SSS as either left-wing (23), 
anti-war (19), or underground newspaper organizations (15). The re- 
maining referrals were considered by the SSS to be of the following 
types: 6 Black militant organizations, 3 welfare and antipoverty 
groups, 3 religious organizations, and 20 organizations which were 
either civic, educational, social, or other types. 

Total net assessments against individuals were approximately 
$580,000, but approximately $501,000 of that amount were attributable 
to four cases. Also, in 89 (of 136 total) cases, either no return was 
secured, a refund was paid, or no tax v/'as due. For organizations, the 
net revenue assessed, was approximately $82,000, and the Service re- 
voked its determination of exempt status in one field referral case. 
(For other actions involving exempt organizations, see section IX, 
Coordination With Exempt Organizations Branch.) The staff under- 
stands that less than $100,000 of the total assessments has been col- 
lected, but that a significant portion of the amounts assessed is still in 
controversy^ 

The staff also reviewed SSS field referral cases for any follow-up 
activity by the field. In nine cases reviewed by the staff there vv^as 
follow-up activity where the SSS-initiated action had not been closed 
before returns for the later years were required to be filed. In six cases 
(some of vdiich were among the nine just noted), there was later field 
action based on routine computer selection. The staff did not find any 
evidence that an SSS referral resulted in a taxpayer being placed on 
a list for future audit or collection action solely because the SSS 
referral had been made. 

Generally, it appears that the SSS did not refer cases for field 
action without some anatysis to determine a tax basis for the referral. 
The number of requests for Social Security data, master file checks, 
and requests for copies of returns tend to indicate that an effort was 
made to obtain tax information to form the basis for a referral to the 
field. Moreover, the small number of cases actually referred to the 
field in relation to the number of files established tends to indicate 
that the SSS generally screened cases before making a referral to the 
field. In the course of its review of the SSS files, the staff found that in 
some cases the tax-related information contained in the referral at- 
tachment might be considered to be insignificant. (However, the staff 
realizes that the evaluation of the significance of much of the material 
involves the exercise of individual judgment. In this light, the staff 

52-219—75 6 



76 

did not review any referral which was completely devoid of tax- 
related information, except for one "national security case.") 

The unusual features of the SSS field referrals were (1) requiring 
an individual who was not required to fde a return to sign a statement 
to that effect, (2) the direction to the field to take a specific action (in 
the initial transmittals), (3) the inclusion of background material 
which had a dubious relationship to tax liabilitj^, and (4) the require- 
ment that sensitive case reporting or other progress reports be used in 
all cases. As a result of its revicAv of the files, the staff concluded that 
the field generally did not treat taxpayers referred by the SSS any 
harsher than it would have in a routine case, although in a few cases 
the field examination may have been excessive in attention to detail. 

Witii resj^ect to the priority given to the SSS referrals by the field, 
it appears that SSS personnel initially believed that their case refer- 
rals would be given priority treatment b}^ the field. However, the docu- 
ments reviewed by the staff indicate that SSS personnel later became 
concerned that these cases were being handled in a routine manner by 
the field. From its review of the SSS files and related field office files, 
the staff has concluded that, except in isolated cases, the field handled 
the SSS referrals in a routine manner. 

Referral Selection Procedures 

Individuals. — Generally, in the case of a file established by the SSS 
for an individual (other than a tax resister to whom the procedures 
described in section VIII applied) , the initial step taken by the SSS 
was to obtain a Social Security identification number from the Social 
Security Administration (if the number was not otherwise available 
from the data used to establish the file) . Requests for identification 
numbers generally were processed by the SSS clerical staff as files 
were established. The requests were signed by Paul Wright, Chief of 
the SSS. As described in Section VT Coordination With Other Gov- 
ernment Units, the SSS would usually make weekly requests of the 
Social Security Administration for Social Security identification num- 
bers for individuals. The staff understands that it was intended that 
Social Security identification numbers eventually would be secured for 
all individual files. Information furnished by the IRS indicates that 
the SSS requested Social Security identification numbers for 2,968 
individuals during its existence. 

After the SSS obtained a Social Security identification number for 
an individual, it would request a search of the Internal Revenue Serv- 
ice Individual Master File to determine if the individual had filed 
income tax returns for recent taxable years. The master file is main- 
tained under a computer system and contains information concern- 
ing a taxpayer's filing histor}^ for individual income tax returns. A 
computer printout reflecting a taxpayer's filing history (or that there 
was no record of a return filed by a particular taxpayer) was fur- 
nished to the SSS as a result of a search of the master file. Usually, the 
SSS clerical staff would request 25 to 30 Individual Master File 
searches each week on a routine basis. Information furnished by the 
IRS 'indicates the SSS requested Individual ^faster File searches for 
3,658 individuals. 

If a master file search indicated that an individual had not filed 
returns for recent years, the SSS then w^ould attempt to determine 



77 

whether the individual probably should have filed an income tax 
return. This determination would be made by an SSS analyst. Ordi- 
narily, the analyst woulH examine the individual's return-filing history, 
information secured from the Social Security Administration concern- 
ing wages paid to the individual, and other financial information 
contained in the file. (Information furnished by the IRS shows that 
the SSS requested earnings reported for Social Security purposes for 
725 individuals during its existence. In addition, the SSS requested 
copies of quarterlj^ payroll returns filed by 150 organizations to obtain 
wage information with respect to all of an organization's employees.) 
Cases involving an individual's failure to file were referred to the 
Collection Division for field action. 

Cases involving an individual's failure to file also were referred to 
the field by the SSS under the "national security case" procedure. 
(See section VI, Coordination With Other Government Units.) Na- 
tional securitj^ cases involved persons who were the subject of an 
inquiry for tax information by the Internal Security Division of the 
Justice Department. Generally, these requests (permitted under sec- 
tion 610oS of the Code) asked "for recent tax returns of an individual. 
As described in section VI, if the lES National OfSce could not find 
that the person had filed a return, a ref erra,! would be made to the field, 
asldng the field to secure the required return. After June 1970, the 
SSS (and not the Disclosure Branch, as before that date) initiated the 
field referrals needed in national security cases to secure required tax 
returns. In some of these cases examined by the staff, it appears that 
the SSS may not have reviewed wage or other financial information 
before making a field referral for collection action. 

If a master file search indicated that the individual had filed, the 
SSS generally would secure a copy of his returns from the applicable 
lES service center for recent taxable years. Information furnished by 
the IRS indicates the SSS requested and reviewed copies of 129 in- 
come tax returns filed by 86 individuals. The returns would be ex- 
amined for omission of income by comparison with financial data con- 
tained in the SSS file. Also, deductions would be reviewed, e.q.^ by 
ascertaining if an organization to which a contribution was made was 
on the Internal Revenue Service list of charitable organizations. If the 
SSS examination disclosed questionable dedactions or the possibility 
of omitted income, the case would be referred to the Audit Division 
for field action. 

It appears that in the case of individuals and organizations, no di- 
rect referrals were made by the SSS to the Intelligence Division for 
investigations of possible criminal violations of the Internal Revenue 
laws or the applicability of the civil fraud penalty. However, after the 
SSS had referred a case to the field, the Collection and Audit Divisions 
occasionally made referrals to the Intelligence Division. 

Organhations. — In the case of an organization, the SSS would re- 
view the IRS Business Master File to determine if payroll and income 
tax returns had been filed. This master file is a computer file system 
containing informatio]i concerning a taxpayer's filing history with 
resnect to payroll tax returns, corporate hicome tax returns, and other 
business related roturas. A computer printout reflecting a taxpayer's 
filing history (or that there was no record of filing by a particular 



78 

taxpayer) was furnished to the SSS as a result of a search of the 
master file. Information furnished by the lES shows that the SSS 
requested Business Master File searches for 832 organizations during 
its existence. 

With respect to organizations claiming exempt status, Exempt Orga- 
nization Master Files were also reviewed to determine if the appro- 
priate information returns had been filed for 437 organizations. This 
master file is a com]3uter filing system containing information concern- 
ing an organization's filing history with respect'to annual information 
returns required to be filed by certain exempt organizations. The SSS 
had a microfilm tape of printouts from this master file and used a 
printer-reader machine to obtain information concerning an exempt 
organization's filing history. 

If the file review on an organization indicated that required returns 
had not been filed, the case was usualh' referred to the Collection 
Division for field action. 

If an organization had filed returns, the SSS frequently would se- 
cure and examine the returns. Information furnished by the IRS shows 
that the SSS requested copies of 140 tax and information returns for 
120 organizations. In the case of an income tax return, the SSS would 
review the return for questionable deductions claimed and (by com- 
parison with information in the SSS file) for the possibility of un- 
reported income. If an examination of the return disclosed the pos- 
sibility of an improper determination of the amount of tax, the case 
would be referred to the Audit Division. 

In the case of an exempt organization, the SSS also would review 
the data in its files to determine if the organization may have engaged 
in prohibited activities which would provide the basis for termination 
of its exempt status. If the examination indicated that the organiza- 
tion might have engaged in such activities, the case would usually be 
referred to the Audit Division for field action. 

Focus on particular groups. — It appears that the SSS staff sys- 
tematically reviewed its files with respect to tax compliance. To a con- 
siderable extent, the emphasis by the SSS upon a particular group at a 
given time would be attributable to the emphasis placed upon a group 
by the agencies which furnished information to the SSS. However, 
the staff was told that in its initial stages, the SSS focused much of its 
attention oh two particular groups (one is a Black militant group and 
the other is generally considered an extremist left-wing group) and 
persons associated with them. (This is generally confirmed by early 
SSS reports.) Also, beginning in 1971, there was some emphasis placed 
on tax resister cases usually involving persons identified with anti- 
war movements. (See section VIII below.) 

In one other situation the staff found that the SSS focused on a 
particular- group of organizations and associated individuals. In a 
memorandum of January 12, 1972, to the Director of the Collection 
Division, Paul Wright stated that the SSS was in the process of 
checking the names appearing on a list of underground newspapers 
and their editors against Individual and Business Master Files and 
other sources for possible tax violations. The staff imderstands that 
this lii?t 'was received by the SSS from the FBI. In this memorandum, 
Mr. Wi.ight stated that several of these cases had already been re- 
ferred to the field for investigation and more would be forthcoming. 



79 

Memoranda and other materials relating to selection for field 
referrals. — From the staff's examination of the SSS files and various 
memoranda and materials, it appears that a field referral ordinarily 
would not be made unless a check of tax information by the SSS in- 
dicated the possibility of a delinquency in filing a return or an er- 
roneous determination of tax as reflected on a return which had been 
filed.2 

An Internal Audit report describing an examination of the SSS 
for the period August 5, 1969, to June 1, 1972, noted that, as a matter 
of policy, the SSS did not refer failure-to-file cases to the field un- 
less the SSS had financial information indicating potential tax 
liability. The Internal Audit report suggested that this policy should 
be reconsidered and that failure-to-file cases be referred ^ to the 
field "when an individual or organization has been identified as 
one worthy of compliance consideration." It appears, however, that 
this recommendation was rejected. In a memorandum of August 25, 
1972, to the Assistant Commissioner (ACTS), the Director of the 
Collection Division took exception to the suggestion of the Internal 
Audit report. With respect to the referral of failure-to-file cases, this 
memorandum stated that "before such action can be taken, this, in- 
formation [indicating that a return had not been filed] should be cor- 
related with other factors, such as filing history, audit potential, and 
other indications of noncompliance. It is not the mission of the staff 
to forward information which would trigger fishing expeditions or 
circumstances that would afford such persons unwarranted publicity 
which they seek or make them appear as martyrs in the eyes of their 
peers and cohorts." 

Method of Referral to the Field 

Transmittal memorandMm, used. — From its inception in July, 1969, 
until it vfas abolished in AuOTst 1973, the SSS referred cases to 
either the Director, Collection Division, or the Director, Audit Divi- 
sion, who would then transmit the material to the appropriate field 
office. The SSS referral would be made by a transmittal memorandum 
containing a summary of SSS file data and a recommendation for 
action.^ The transmittal memorandum used by the SSS until approxi- 
mately June 1970, indicated that the recommended action was to be 
promptly initiated. (The memorandum stated "please promptly ini- 
tiate the action recommended.") Attached to the referral memorandum 
was a summary of the case file and a recommended action. 

The transmittal memorandum also directed the field to use sensitive 
case reporting procedures to report field action on the referred case. 
The sensitive case reports were to be mailed to the SSS.* 

2 A memoranclum of September 19, 1970, from Commissioner Thrower to Tom Charles 
Huston, indicated that there woiild be n field referral where there was renson to be- 
lieve the tax laws were not complied with. In April 1972, the Internal Revenue Manual 
was amended to include the functions of the SSS : the amended Manual stated that field 
referrals would be made where it had been determined the tax filinsr and navinc: reqnirpments 
were not met or there was a material difference between tax liability reflected in the filed 
return and the correct amount. A memorandum of Februarv 28. 1973, from Paul Wricrht to 
the Director. Collection Division, submitted proposed criteria for SSS flpkl referrals. 
Generally, these criteria provided that field referrals would he made when information In- 
dicated the tax laws were not complied vrith. 

' All of these documents restricted the dissemination of the information on a "need-to- 
know" basis. A National OfBce telephone number was provided in the transmittal memo- 
randum to facilitate field communication with the SSS. 

* TTnder the Internal Revenue Manual, sensitive cases were cases which would be of con- 
sidernble public interest if they became known, resultinsr in inquiries or criticism directed to 
the National Oflice. A sensitive case report was jrenerally used to report sijrnificant events 
in a case, and was normally required to be submitted whenever a sicrniflcant chnnsre took 
place. Tlie sensitive case reporting system was suspended by Commissioner Alexander on 
November 13, 1974. ■ . ,. 



80 

In form, the transmittal memoranda were from the appropriate 
Assistant Commissioner (Assistant Commissioner (Compliance) 
until 1972, and Assistant Commissioner (ACTS) thereafter) rather 
than the SSS. In an interview witli the staff, the staff was told that. 
Avhile the SSS was nnder the jurisdiction of the Assistant Commis- 
sioner (Compliance), the transmittal memoranda were nsnally signed 
by Donald Bacon (the Assistant Commissioner) . by his deputy, Leon 
Green or by Bernard Meehan. a staff assistant. JDurins; 1972 Paul 
Wright, Chief of the SSS, sio-ned some of the transmittal memo- 
randa on behalf of the Assistant Commissioner (Compliance). Also, 
after the SSS was placed under the jurisdiction of the Assistant 
Commissioner (ACTS) as part of the Collection Division in April, 
1972, the Chief of the SSS had authority to sign the transmittal memo- 
randa in the name of the Assistant Commissioner (ACTS) . Thereafter, 
a majority of the transmittal memoranda were signed by Mr. Wright 
for tlie x\ssistant Commissioner (ACTS) . 

GJianges in transmittal memorandum and reporting requirements. — 
A change in the transmittal memorandum was made in approximately 
June, 1970. First, the memorandum no longer directed prompt ini- 
tiation of the recommended action, but stated : "Please transmit this 
letter and report to the appropriate District Director for considera- 
tion of the action recommended." Second, sensitive case reporting 
procedures were to be used onlj in the event that the field accepted 
the recommendations, and if the field decided against initiating the 
recommended action, a brief memorandum to tliis effect was requested. 

The staff understands that' the IVational Office very seldom directs 
the field to take any specific action in regard to an examination or 
investigation find that a District Director has the full responsibility 
for administering the tax laws in his district. Leon Green told the staff 
that the initial transmittal memorandum directing the field to take a 
specific course of action was found to be contrarv to this general policy 
followed within the Internal Ee venue Service. In light of this general 
policv, Mr. Green said that the transmittal memorandum was revised 
9o that information was referred to the field for whatever action the 
field personnel considered appropriate. 

An additional change occurred in approximately June, 1972. At 
that time, the sensitive case reporting procedure was terminated and 
the instructions to the field stated that if the action recommended bv 
the SSS was not initiated, an explanation should be mailed to the SSS. 
In lieu of the sensitive case reporting requirement, the SSS was to be 
informed of the results of any investigation and to receive copies of 
any retunis secured if the action recommended by the SSS was initi- 
ated. Later, under an Internal Eevenue IManual Supplement dated 
April 12, 1973. quarterly status reports were required to be submitted 
to the SSS for each case initiated by it. 

It appeal's that the reporting procedure was changed as a result 
of recommendations made in an Internal Audit report on the examina- 
tion of the SSS for the period August 5. 1969, to Jime 1, 1972. The 
Intorual Audit report noted that sensitive case i-enorts reflected signifi- 
cant developments, but often rlid not show the investigative activity 
undertaken by th^ field. The Internal Audit report concluded that in- 
formation concerning investigative activity was necessary for the SSS 
to be able to monitor the progress of pending investigations and to 
evaluate the adequacy of closing actions. 



81 

Information sent to the field loith transmittal memorandum.— 
The attacliment to the transmittal memorandum general!}^ included 
background material relating to the individual or organization. The 
attachment included information concerning an individual's associa- 
tions or activities, financial data, potential sources of income, and 
questionable items on any return filed. Additionallj^ in many of these 
attachments, information obtained from FBI reports received by the 
SSS was summarized. With regard to an individual, the attachment 
often noted affiliations, e.g., Black militant groups, anti-war groups, 
or other organizations. In some cases, detailed information was given 
concerning an individual's activities, such as speeches given, attend- 
ance at meetings or demonstrations, etc. Occasional!}^, there were 
warnings concerning an individual's propensity to violence. In the 
case of an organization, there frequently was an outline of the names 
and activities of the principal officers or supporters, and the nature 
of the organization, together with am/ financial data. 

In his staff interview, Leon Green said he once refused to refer a 
case to the field because there was no information in the attachment 
to indicate that a return was due or that the individual had received 
any income. Mr. Green also related that he once deleted from a trans- 
mittal memorandum what he felt Avas an irrelevant discussion of the 
taxpayer's political opinions and aiHliations. 

Action recommended to -field hy JS/SjS. — As previously noted, the 
transmittal memorandum also included a recommended action. In the 
case of a referral to the Collection Division, the recommendation was 
to secure any returns required to be filed. If the field determined that 
an individual was not required to file an income tax return, it was 
initially recommended that a signed and witnessed statement be se- 
cured from the individual to the effect that no return was required. 
The staff understands that this type of statement was not usually re- 
quired in other collection cases where a return did not have to be filed. 
In staff interviews, former SSS personnel said that the practice of 
recommending that signed statements be secured in all cases was dis- 
continued during 1970. However, later referrals examined by the staff' 
included this requirement (this may have been done where SSS per- 
sonnel used an earlier recommendation as "boilerplate" for the trans- 
mittal mem-orandum). In April, 1972, the District Director for Des 
Moines, Iowa, objected to an SSS recommendation to secure a state- 
ment that no return was due. The District Director said, in a memoran- 
dum to the National National Office, that this recommendation resulted 
in discrimination against taxpaj^ers associated with Black militant 
organizations because other taxpayers in the same situation were not 
required to submit signed statements. 

In the case of a referral to the Audit Division, the SSS recommenda- 
tion was to examine the taxpayer's return for a particular year or 
years. Usually, there was a brief exj^lanation for requesting the ex- 
amination, ex/., it had been reported that the taxpayer cashed certain 
checks, the taxpayer had claimed a deduction for contributions to a 
noncharitable organization, or an exempt organization had possibly 
engaged in prohibited activities. 

Action Taken hy the Field 

Upon receipt of a referral memorandum and attachments from 
the SSS, the Collection or Audit Division of the National Office would 
transmit the case to the appropriate district office. The district office 



82 

would evaluate the referral for purposes of assignment to a revenue 
officer (collection cases) or a revenue agent (audit cases), as the case 
may be, to implement the recommended action. 

GoUection cases. — In the case of a referral to the Collection Di- 
vision, the case generally would be set up as a "miscellaneous investi- 
gation" and assigned to a revenue officer. Under the procedures gen- 
erally applicable to a miscellaneous investigation, the revenue officer 
was required to complete the investigation as soon as i^racticable, 
complying with pertinent Manual instructions, and employ usual 
routine investigative and enforcement procedures. A completion date 
would be indicated on the miscellaneous investigation assignment and 
control form. 

Generally, in the case of an SSS collection referral, the revenue 
officer would determine if a return were required to be filed and secure 
any required return pursuant to the action recommended by the SSS. 
Tlie contact by a revenue officer v/ith an individual (or an officer of an 
organization) would usually involve written communication or per- 
sonal contact. If an individual or the responsible officer of an organiza- 
tion could not be located, the case usually would be closed by the field 
office. In cases where the individual was not required to file, the reve- 
nue officer would ordinarily attempt to secure a signed statement to 
the effect that no return was required to be filed, where this was 
recommended. 

Audit cases. — In the case of referrals to the Audit Division, the 
cases were generally handled by a revenue agent or an office auditor 
through correspondence with the individual or organization, by an 
office audit involving the appearance of the individual or appropriate 
officers of an organization at the district offices, by a field audit in- 
volving the appearance of the individual or appropriate officers of an 
organization at the district offices, or by a field audit involving the 
examination of records at the residence or place of business of the 
individual or organization. In the case of audit referrals, the case> 
might be closed without the audit recommended by the SSS if the 
individual or responsible officers of an organization could not be lo- 
cated. Occasionally, an audit w^ould not be conducted pursuant to the 
SSS recommendation because the field office's examination of the re- 
turn disclosed little or no revenue potential. 

One audit case referred to the Baltimore District to determine if the 
taxpayer qualified for exempt status was reflected in inventory for 
longer than 2 years, but was not assigned because of that district's 
caseload. Thereafter, the Baltimore District informed the Director of 
the Audit Division that the organization would not ordinarily be se- 
lectedfor audit due to minimal potential of noncompliance. The ref- 
erral memorandum in this case contained an extensive amount of 
material relating to the activities of its principal officers. 

Speed of reaction hy f eld.— In general, it appears that the reaction 
time by a particular field office to the request originating with the SSS 
would depend upon its workload and availability of manpower. In a 
case .where delinquent returns were secured from an individual, the 
cases would ordinarily be closed within 6 months after the SSS ref- 
erral. However, in some instances, collection activity would extend 
for more than a year before the case was finally closed. (Many of these 
cases were referred to districts having heavy workloads.) Usually, 
audit cases required more time to close than collection cases. In some 



83 

cases involving complicated facts and issues, the audit activity may 
have extended over a period of several years. 

Field and SSS commumcations. — As previously noted, in order to 
keep the SSS informed of the status of each case referred to the field, 
sensitive case reporting was required until approximately June, 1972. 
Thereafter, the SSS was to be informed periodically by memoranda 
as to the status of the case. In a few cases, field representatives were en- 
couraged to contact the SSS in regard to information which was not 
included in the transmittal memorandum due to the confidential na- 
ture or volume of such information. In such cases, the field representa- 
tive would contact the SSS by telephone or examine the material at 
the SSS office. 

The SSS would follow up on the status of field referral cases through 
written or oral communications. Usually, an inquiry concerning the 
status of a case would be made by the SSS evei-y 6 months if a sensi- 
tive case report had not been received within the last 3 months. 

In one audit case referred to the Baltimore District concerning the 
exempt status of an organization which could be categorized as a "left- 
wing radical" organization, the staff found that there was an excep- 
tional degree of communication directly with the revenue agent who 
was in charge of the investigation. In this case, the audit examination 
had begun before the SSS recommended an audit of the organization 
and there was an initial no-change determination by the field. A sensi- 
tive case report prepared by the agent indicated that an SSS analyst 
instructed the auditor not to close the case without checking with the 
SSS. Further, the agent visited the SSS office to review confidential 
material in the SSS file and was in frequent contact with SSS per- 
sonnel. (Materials concerning this case were also furnished by the SSS 
to Roger V. Barth, at his request.) As of August, 1973, when the SSS 
was abolished and ceased recording the case status, this case was re- 
flected as being open. The staff understands that the case was subse- 
quently closed and that the exempt status of the organization was 
not revoked as a result of the examination. 

Priority given to SSS referrals hy field. — It appears that in most 
cases the field offices did not assign any greater priority to SSS refer- 
rals than to any other referrals made by a unit of the National Office. 

In June, 1970, Donald O. Virdin, then Chief of Disclosure and 
Liaison Branch, entered into an agreement with Paul Wright, Chief 
of the SSS, whereby the SSS was to make some "national security" 
case referrals.^ Apparentlj'-, it was thought that SSS referrals (signed 
by the Assistant Commissioner, Compliance) would receive higher 
priority in the field than had referrals from Disclosure, which had 
been treated routinely by the field. However, it appeai-s from other 
information described below that SSS referrals did not receive top 
priority. 

In a memorandum of January 12, 1972, to the Director of the Col- 
lection Division, Paul Wright submitted a list of seven cases referred 
to the Manliattan District which were over one year old. He noted 
that, in many of the cases, the revenue officer assigned to the case had 
yet to make personal contact with the taxpayer and, as a result, there 
was a great delay in closing the investigations. The Internal Audit 
Report on the examination of the SSS for the period August 5, 1969, 
to June 1, 1972, also observed that the Manhattan District treated 

" See section VI, Coordination Witli Other Government Units. 
52-219 — 75 -7 



8^^ 

investigations requiested by the SSS as courtesy or miscellaneous- 
investigations. 

The Internal Audit Eeport also stated that a review of 36 closed 
cases indicated 6 cases in which the information furnished by the SSS 
was ineffectively utilized to establish compliance with Federal tax 
laws. The Report concluded that there was a need to communicate the 
objectives of the SSS to the field personnel involved in the investiga- 
tive process. 

In a memorandum of August 25, 1972, to the Assistant Commis- 
sioner (ACTS), Harold Snyder, then Director of the Collection Divi- 
sion, stated that the functional statement in the Internal Revenue 
Manual "does not effectively communicate the mission of the [Special 
Service] Staff to a degree whereby the field would afford these cases 
the priority and attention they deserve. Therefore, there is an imme- 
diate need for an appropriate vehicle to better inform regional and 
district offices of the nature and mission of the Staff and to establish 
a definite system of priorities which they should follow in handling 
Staff referrals." 

On April 12, 1973, an Internal Revenue Manual Supplement wa& 
issued with respect to the activities of the SSS. Its stated purpose 
was to acquaint personnel with the SSS operation and mission and 
"to assure that field offices give sufficient attention to information 
furnished them by the Staff." 

Swminary of Field RefeiTols 

Numher and type of referrals. — As of August 7, 1973,^ the SSS 
had referred 225 cases to the field (excluding war tax resist er referrals 
described in section VIII of this report) under the referral proce- 
dures described above (136 individual cases and 89 organizations). 
Taking into account 9 referrals which contained the names of both 
husband and wife, these referrals related to 234 individuals and orga- 
nizations, consisting of 145 individuals and 89 organizations. In other 
reports, the SSS had indicated that 250 referrals had been made to 
tlie field. This total apparently included 16 known oral and written 
"communications" in which information concerning a taxpayer was 
furnished to the field. These "communications" were not formally 
made in accordance with the procedures described above, and there 
apparently was no SSS follow-up or reporting required by the field. 

As between the Collection and Audit Divisions, the SSS referrals 
to the field were as follows: 



Collection Audit Total 



Individuals: 

SSS referrals 110 i 26 136 

Field transfers from collection to audit (25) 25 



Subtotal. 



136 



Organizations: 

SSS relerrals 66 23 J3- 

Field transfers from collection to audit --"""III^II (17) 17 

Subtotal 49 40 89 

Total 134 91 225- 



> Total includes one case referred to the Office of International Operations. 



"The Commissioner's decision to disband the SSS was communicated to tlie SSS two- 
nays betoro llio press release of August 9, 1973, was issued. Accordingly, tlie SSS discon- 
tinued maintaining case status records on August 7, 1973, rather than August 9, 1973. 



85 

With respect to field referrals relating to individuals, the SSS files 
indicated primary affiliations with organizations that apparently can 
be characterized as follows : 

NumlieT' 

"Black militant" org-anizations 63 

"Anti-war" groups 24 

"Left-wing" organizations 10 

"Right-wing" organizations 7 

"Civil rights" organizations 10 

"Student activist" organizations 13 

Other organizations, or unknown 9 

Total individual cases 136 

In any case where an individual was associated with two or more of 
the groups listed, the case was classified micler the one description 
which appeared to be the affiliation emphasized in the SSS background 
material. 

Based upon the emphasis placed by the SSS upon the purposes of an 
organization or the characterization of an organization's principal 
officers, the organizations may be classified as follows : 

"Left-wing" organizations 2S 

"Anti-war" groups 19 

"Underground" newspapers 15 

"Black militant" organizations 6 

Welfare and antipoverty gi'oups '. 3 

Religious organizations 3 

Civic, educational, social, or other - 20 

Total S9 

The classification above reflects the description emphasized in the 
SSS background material. It should be noted that the classifications 
are made on a philosophical basis for some of the organizations (e.g., 
left-wing) and on a functional basis for others (e.g., underground 
newspapers). With respect to the underground newspaper classifica- 
tion (which was the largest single classification made on a functional 
basis), almost all of the newspapers would be classified as anti-war if 
the classification were made on a philosophical basis. 

Results of referrals in individual cases. — With respect to the individ- 
ual cases, SSS records indicate that field action resulted in the filing of 
157 individual income tax returns and 7 gift tax returns. According to 
SSS records, the net amount assessed with respect to individual cases 
referred to the field was approximately $580,000 as of August 7, 
1973 (including taxes and penalties). The SSS records indicate that 
approximately $501,000 of the $580,000 assessed was attributable to 4 
cases. The staff understands that less than $100,000 of the assessments 
have been collected but that a significant portion of the amount as- 
sessed is still in controversv. 



86 

Based on SSS records, the status of individual cases may be sum- 
marized as follows: 



Number of cases 



Collection 



Audit 



Total 



Open as of Aug. 7, 1973 per SSS records.. 7 

Closed cases, reason for closing— Return secured or audit changes: 

Deficiency 10 

Refund. 7 

No tax due 12 

Return already filed 11 

No return required 10 

Unable to locate 20 

No change audit 

Refund as result of audit 

Case declined by field — 

Other reasons - - 8 

Total 85 



12 



19 

28 
7 

14 
12 
10 
20 
10 
1 
1 
14 



136 



Results of Tefei^als in the case of organizations. — ^With respect to 
cases relating to organizations, SSS records indicate that field action 
resulted in the filing of 99 returns (38 corporate returns, 17 informa- 
tion returns for exempt organizations, 37 payroll tax returns, and 7 
excise tax returns) . According to SSS records, the net amount assessed 
with respect to organizations referred for field action was approxi- 
mately $82,000 (including taxes and penalties) . With respect to organi- 
zations claiming exemption from income tax, the field referrals made by 
the SSS resulted in revocation of the favorable determination letter 
issued to one organization. 

Based on SSS records, the status of the organization cases may be 
summarized as follows : 





Number 


of cases 






Collection 


Audit 


Total 


Open as of Aug. 7, 1973 per SSS records 

Closed cases, reason for closing— Returns secured: 

Deficiency 

No tax due 


4 

5 

12 


12 

4 
3 
2 



15 
2 
1 
1 


16 

9 
15 


Return already filed 


3 


5 


No return required 

Unable to locate officers 

No change audit 


11 

7 




11 
7 
15 


Case declined . 





2 


Exemption revoked.. 

Other 




7 


1 
8 








Total 


49 


40 


89 









Intelligence referrals. — According to the records of the Intelligence 
Division of the National Office, 19 cases (15 individuals and 4 organi- 
zations) referred to the Collection and Audit Division by the SSS were 
later referred to the Intelligence Division by those Divisions for an 
investigation for violation of criminal provisions. These records indi- 
cate the following disposition of the 19 cases: 6 cases closed by the 
Intelligence Division, 3 cases returned to the Collection Division, 4 
cases returned to the Audit Division, 5 cases noted on Intelligence 
Division information cards, and 1 case referred to the Department 
of Justice. The SSS files indicate that an additional 19 cases were re- 
ferred to, or considered by, the Intelligence Division. The files indi- 



87 

cate that the Intelligence Division rejected 12 of these cases and show 
no disposition of the remaining 7 cases. 

Uncompleted cases.— As, of August 7, 1973, 35 of the cases referred 
by SSS had not been closed by the field (19 individual cases and 16 
organization cases), and 190 cases had been closed by the field (117 
individual cases and 73 organization cases) . 

Subsequent Field Action Concerning SSS Referrals 

The field referral cases examined by the staff were also reviewed to 
determine if there had been follow-up audit or collection activity 
concerning a taxpayer who had been the subject of an SSS field 
referral. In the course of examining the files, the staff found that in 
nine cases (of 149 cases examined) the scope of the initial SSS-initiated 
audit or investigation was expanded to include subsequent years by the 
agent or revenue officer. It appears this occurred because the SSS- 
initiated audit or investigation had not been closed before returns for 
the subsequent years were then required to be filed. 

In addition, the staff reviewed computer print-outs of transcripts of 
account for taxpayers from the appropriate master file to determine if 
there had been any follow-up audit or collection field action. Each 
transcript of account furnished to the staff by the Internal Revenue 
Service was coded to indicate whether there had been any such action 
and how it originated, ^.e., whether the action resulted from a com- 
puter system selection or by other means. In reviewing these tran- 
scripts, the staff found that there had been subsequent audit action in 
six cases where selection for audit was made under a routinely em- 
ployed computer processing system, designed to flag returns where 
potential for noncompliance appears to be present. (Several of these 
six cases where the return was chosen for audit action by computer 
process were among the nine cases discussed above.) In one other case, 
an organization was selected for field action under a compliance pro- 
gram employing a computer system that checks for delinquent returns 
by comparing the returns filed for a taxable year with those filed for 
prior taxable years. 

The staff did not find any evidence that an SSS referral resulted in 
a taxpayer being placed on a list for future audit or collection action 
solely because the SSS referral had been made. 



VIII. FIELD REFERRALS ON WAR TAX RESISTERS 

Summary 

In 1970 the SSS began to take account of what it called "war tax 
resisters." A "war tax resister" generally was defined as an individual 
or organization that refused to pay Federal income or excise taxes as 
a protest against the United States' participation in the Vietnam war 
or who encouraged others to refuse to pay taxes. (However, the staff 
reviewed several cases included by the SSS in the war tax resister 
group of cases where noncompliance occurred because of a tax protest 
that was not directed toward the Vietnam war.) 

The SSS classified approximately 800 files as "war tax resisters," 
and it referred to the field 550 of these cases. These referrals occurred 
in two groups, the first a group of 320 cases during March-April, 1972, 
and the second a group of 230 cases during December 1973, after the 
SSS had been terminated. Unlike the other field referrals (discussed 
in section VII above) w^here the SSS recommended that the field take 
specific action, the tax resister referrals were sent out for the informa- 
tion of the field offices and for whatever action they "deemed appropri- 
ate." 

Origins of SSS Activity on War Tax Resisters 

Information in the SSS files indicates that SSS employees first 
began to take account of the war tax resistance movement early in 
1970,^ when the SSS began receiving FBI reports on this activity. 
However, it appears that the SSS began to focus on war tax resisters 
around mid-1971. On April 28, 1971, members of a war tax resistance 
organization held a demonstration at the National Office of the IRS in 
Washington, D.C. According to an SSS report, the SSS acquired 
copies of a tax resistance publication shortly after this demonstration 
and by mid-July 1971, the SSS had used this publication to establish 
a list of 192 individuals and organizations active in the war tax resist- 
ance movement. An SSS report also states that during June 1971, the 
SSS received from the FBI a list of underground newspapers in the 
United States and a list of the editors of these papers.^ 

During 1971, the SSS received additional FBI reports on tax re- 
sistance organizations and individuals, and publications the SSS re- 
ceived had begun to carry more articles on this topic. The SSS files 
also contain information indicating that some IRS field offices were 
having additional problems with tax resistance. (However, it is not 

1 IRS concern srenerally with the failure to pay Federal taxes as a war protest had 
developed much earlier. For example, the Internal Revenue Manual contained gruldellnes 
for the handling of war tax resistance cases as early as 19RR. The guidelines ori -finally 
pertained to failures to pay Federal income taxes, but by 1970 they also Included telephone 
and transnortation excise taxes. 

'According to a January 1, 1972. memorandum from Paul Wright to the Director of the 
•Collection Division, the SSS considered that nnderground newspapers were important to 
the examination of the war tax resister croup because they acted as a "conduit for their 
movement." and contained numerous articles on how to file false returns and otherwise 
-confuse TRS operations. "Underground newspaper" was defined to include newspapers of 
antl-estsblishment orientation which advocated violent or subversilve means to achieve their 
•ends. According to the IRS, the SSS had files on 148 underground newspapers. 

(89) 



90 

clear whether the SSS became aware of these problems during 1971.) 
At the end of November, 1971, the Washington Post carried an ar- 
ticle on war tax resisters. Memoranda in the SSS files indicate that 
this article came to the attention of Commissioner Johnnie M. 
Walters. These memoranda also indicate that Mr. Walters was 
concerned about tax resisters, and his concern was communicated to 
the IRS employees charged with tax compliance. Memoranda in the 
SSS files indicate that the SSS participated in drafting a report 
on tax resisters (dated December 30, 1971) to the Commissioner from 
the Acting Assistant Commissioner (Compliance) John F. Hanlon. 
Mr. Walters returned this report with comments directing increased 
IRS action in this area. Thereafter, the SSS apparently intensified its 
activity dealing with war tax resisters. 

Sources of War Tax Resister Files 

The names for the SSS tax resister files were derived from several 
sources. One major source was publications, such as tax resistance 
newspapers and underground newspapers received by the SSS. These 
publications contained lists of individuals or organizations active in 
tax resistance. They also contained signed letters to the editor and 
articles on tax resistance activities. (As noted above, the names of a 
number of newspapers were provided to the SSS by the FBI.) 

The SSS also received names of tax resisters from other units in the 
IRS. IRS Service Centers sent the SSS the names of tax protesters 
who had come to their attention because of information on returns 
filed with the Service Centers or letters of tax protest received by the 
Service Centers. Additional names and information were referred to 
the SSS by other IRS offices (including letters from the public 
complaining about the attitudes and activities of the tax resisters). 

A third major source was FBI reports. As noted above, the SSS re- 
ceived a number of FBI reports on tax resistance individuals and or- 
ganizations, and also received a list of underground newspapers. 

Field Referrals of War Tax Resister Cases 

According to information supplied by the IRS, the SSS had com- 
piled files on approximately 800 war tax resister individuals and orga- 
nizations. Of these 800 cases, 550 were referred to the field. The refer- 
rals of war tax resister cases were transmitted to the field in two 
groups, the first, a group of 320 cases sent out during March and April 
of 1972, and the second, a group of 230 cases sent out on December 20, 
1973 (after the SSS had been formally terminated). (See section IV, 
Development of the Special Service Staff.) The 550 total field refer- 
rals of "war tax resisters" included 397 individuals and 153 organiza- 
tions.^ 

First group of field referrals. — The first group of field referrals 
was transmitted by the SSS under a memorandum from the Assistant 
Commissioner (ACTS) to the District Directors. The SSS transmit- 
tal memorandum, entitled "War Tax Resisters," contained a discus- 
sion, of the war tax resistance movement and a number of exhibits 
designed to acquaint the District Director with the scope and activi- 

■•'Thp staff examination of administrative files and the other field referrals indicates 
that prior to March of 1972. there were several referrals of ca.'^es which could be classi- 
fied as war tax resistors. A number of undcrpround newspapers wore also referred to the 
field under regular field referral procedures. The SSS also several times sent information 
concerning war tax resisters to field ofiices on an informal basis. 



91 

ties of this movement. A list of the individuals and organizations 
located in the particular lE-S district to which the memorandum was 
sent was attached to the transmittal letter, along with tax filing 
history for these individuals and organizations, v/he,re this informa- 
tion was available. Unlike the other field referrals (discussed in sec- 
tion VII), these referrals did not recommend that specific action be 
undertaken by the field offices, but said that the district should take 
action as it "deemed appropriate." The transmittal also asked that a 
memorandum of any actions taken and results obtained be sent to Paul 
Wright. (The transmittal memoranda did not mention that the refer- 
rals came from the SSS.) 

The staff examined a 10-percent random sample of the SSS files 
on this first group of war tax resister field referrals. The sample in- 
cluded 27 individuals and 6 organizations. The reports from the field 
included in the SSS files examined by the staff indicate that the 
referral resulted in field activity in a minority of the cases and that 
the field activity was by the Audit or Collection Divisions, with no 
indication that any Intelligence Division action occurred. 

The staff examination indicates that some of these field referrals 
were made without previous analysis to see if there was likelihood of a 
tax violation. The SSS files on one of the cases referred to the field con- 
tained no evidence that the SSS had obtained and reviewed tax in- 
formation (such as an Individual Master File printout) to determine 
whether the taxpayer may have failed to comply with the tax laws. In 
another case the Individual Master File printout showed that tax re- 
turns had been filed for all prior years with no balances owed ; on this 
printout a-n SSS employee had noted that there was no basis for audit 
action. However, approximately one month later this case was refer- 
red to the field. 

Not all of the cases in the first group of referrals involved "war" tax 
resisters. One organization referred to the field was a tax protest group 
generally classified as an "extremist White racist" group; there was 
no indication that this group was anti-war. Similarly, another case in- 
volved an individual who opposed the progressive income tax ra,te 
structure, and there was no indication this individual was anti-war. 

Second group of field refenmls. — The second group of field referrals 
was sent out on December 20, 1973, using a different form of trans- 
mittal memorandum than was used with tlie first group. The transmit- 
tal memorandum for these referrals was entitled "Information Items" 
and i\\Q, District Directors were advised that the attached materials 
were forwarded for their information and for whatever action they 
"deem appropriate." The memorandum also advised that it was not 
necessarv to report any action taken, as was required with the earlier 
group of referrals. (Apparently no reply was requested because the 
SSS had been terminated.) Finally, there was attached a list of the 
individuals and orgnnizations with their tax filing historj^, if this 
information was available. 

The staff also examined the SSS files of a 10-percent random sam- 
ple of this group of field refcri'als. This sample included 22 individuals 
and one organization. Printouts from the Individual Master File were 
obtained by the SSS for all of the 22 individuals examined; a m.aster 
file printout was requested by the SSS for the one organization (but 
none was found because the organization had never obtained an Em- 



92 

ployer Identification Number) . In comparison with the first group of 
field referrals, the SSS files on these referrals contained considerably 
more information indicating possible noncompliance with the tax laws, 
to support the referral of these cases to the field. (According to the 
SSS files, two of the names in the staff sample did not involve tax 
resisters and two of the names were derived from the Justice Depart- 
ment's "Inter-Divisional Information Unit" list, described in section 
yi above.) 



IX. COORDINATION WITH EXEMPT ORGANIZATIONS 

BRANCH 
Summary 

Under a written operatino; procedure, certain exempt organization 
cases handled by the National Office were coordinated with the 
SSS. If a case involved a so-called "activist organization,"' the case 
was classified as an SSS case by the Exempt Organizations Branch^ 
(the E-0 Branch) and referred to the SSS in order that they might 
have an opportunity to see open case files pertaining to these organiza- 
tions. The SSS would, in turn, flag those cases in which they were in- 
terested, request additional information from various agencies, and 
forward this information to the E-0 Branch for its consideration in 
disposing of the case. Much of this information concerned officers or 
other individuals associated with the organizations seeking exemption. 

During the period that the SSS was in existence, approximately 153 
cases were referred to it by the E-0 Branch. The SSS expressed an in- 
terest in 80 of these cases. In several cases, the SSS went be3'ond merely 
furnishing information to the E-0 Branch and recommended a par- 
ticular disposition of the case. 

Although the SSS attempted to influence a decision of the E-0 
Branch in several cases in which they had expressed an interest, the 
staff, after analyzing the cases, found that the SSS played little, if 
any, part in the disposition of the substantive issues in the case. At 
an early stage in the operations of the SSS, it was established that the 
SSS was not to have a role in the determination of exempt status under 
the tax law. However, confidential information submitted by the SSS 
was used by the E-0 Branch in several cases as a basis for requesting 
additional information from the organization seeking exemption. In 
addition, this information was considered in determining whether the 
organization's operations should be audited in the near future. 

Finally, a review of the files showed that coordination with the 
SSS resulted in a delay in the rulings process. In many cases in which 
the SSS expressed an interest, the disposition of the case was delayed 
for a period of approximately one to three months, primarily as a 
result of coordination with the SSS. 

Procedure for SSS Coordination With Exempt Organizations Branch 
On July 24, 1969, the newly formed SSS (then known as the Activ- 
ist Organizations Committee) held an organizational meeting "to 
establish basic communications between the various functions of the 
Internal Revenue Service and to furnish an overall picture of the pur- 
pose and sensitivity of this Committee." A representative of the 
E-0 Branch attended this meeting. In a summary memorandum 

1 Unless otherwise Indicated, references to the Exempt Organizations Branch are made 
In this report to the organizational unit under the jurisdiction of the Assistant Commis- 
Bioner (Technical) which has functional responsibilities in connection with issuing rulings 
or determination letters concerning exemption of an organization rather than to the Exempt 
Organizations Examination Branch under the jurisdiction of the Assistant Commissioner 
(Compliance) which is charged with audit responsibilities. 

(93) 



94 

of the meeting, it was indicated that the SSS expected the E-0 
Branch "to play an active part" because of the type of organizations 
involved. 

In response to this meeting, the E-0 Branch agreed to give the SSS 
un opportunity to comment on a case in the National Office before 
taking favorable action {e,g.^ reco^gnizing exempt status) with respect 
to so-called "acti^dst" organizations — those that were classified as 
"ideological, militant, subversive, radical, and similar organizations." ^ 

On September 26, 1969, the Director of the Miscellaneous and Spe- 
cial Provisions Tax Division (the E-0 Branch is a part of this Divi- 
sion) sent a memorandum to the Assistant Commissioner (Technical) 
advising him that procedures were being set up to coordinate the E-0 
rulings program with the SSS. In the memorandum, it was stated 
that "The thrust of the procedures we propose is to give Compliance ^ 
the maximum cooperation, to facilitate the exchange of information 
without delaying the rulings program, to take maximum advantage 
of information available to Compliance that may prevent the issu- 
ance of rulings on the basis of inaccurate or incomplete facts, and at 
the same time to preserve the procedural rights accorded to taxpayers 
by Rev. Proc. 69-3,* and to preserve the principle that rulings are 
based on an even-handed application of the law to the facts presented." 

In order to implement an exchange of information with the SSS, 
the E-0 Branch developed an operating procedure for handling cases 
involving activist organizations which might be of interest to the 
SSS. This operating procedure was issued on November 13, 1969. 
Under the procedure, a representative of the E-O Branch was to 
serve as coordinator between the E-O Branch and the SSS. A list 
containing the names of 99 organizations that the SSS was initially 
concerned with was attached to the procedure.^ Any case involving 
one of these organizations was to be designated as a "committee case" 
and routed to the coordinator for referral to the SSS (then called the 
Activist Organizations Committee). In addition, the group chief in 

* Applications for recognition of exemption generally were submitted by the organization 
seeking exemption to the appropriate District Director of the IRS ; beginning in February 
1970, applications were forwarded by the District Director to the appropriate key district. 
Generally, the District Director would then review the application and issue a determina- 
tion letter. However, the District Director was not authorized to issue a determination 
letter if the case: (1) presented or involved questionable issues not covered by established 
rules or published precedents; (2) involved a group ruling or a ruling supplemental to a 
group ruling; or (3) involved a matter of potential extensive public interest {e.g., where 
an IRS position may have given rise to widespread controversy or where a subversive or- 
ganization is involved). Applications that were determined to be within these three clas- 
sifications were forwarded to the National Office for decision. In addition, the organization 
seeking exemption could request that the District Director submit the case to the National 
Office for technical advice if the organization received an adverse determination from the 
District Director. If the organization requested technical advice, the District Director was 
required to send the case to the National Office. 

Cases could also be referred to the National Office Involving the modification or revoca- 
tion of an organization's existing exemption. Generally, after examining an information 
return or considering information from other sources showing that an organization's 
exemption should be modified or revoked, the District Director would notify the organization 
of its proposed action, including the reasons therefor, and advi'se the organization of Its 
right to a district office conference. The organization could waive Its right to a district office 
conference and request that the case be referred to the National Office for consideration. 

*The SSS was then under the .iurisdiction of the Assistant Commissioner (Compliance). 

*■ These procedural rights Include the right to protest the proposed action, the right to a 
district office conference, and the right to request referral of the case to the National Office. 

''This was the list of the "original" organizations the SSS worked on. The list included 
22 organizations that were the subject oif an Inquiry by the Permanent Subcommittee on 
Investigations of the Senate Government Operations Committee, 55 organizations that were 
the subject of an inquiry to the field by the Assistant Commissioner (Compliance) on 
July 14. 10(50, and 22 organizations that were the subject of another inquiry to the field by 
'the Assistant Commissioner (Compliance) on October 8, 1069. See section V, Special Serv- 
ice staff Files. 



95 

the rulings section of the E-0 Branch was to select and route "similar 
cases" to the coordinator for referral to the SSS. 

Under the procedure, the SSS would then indicate to the E-0 
Branch whether it was interested in the organization or not, and would 
attach any information that it felt should be considered by the E-0 
Branch in disposing of the case. Any information supplied by the 
SSS was to be treated as confidential, unless the SSS specifically 
authorized disclosure in writing. Confidential information was not to 
be used as a basis for any ruling action by the E-0 Branch, but was 
to be used "as a source of leads for the development of information 
on which to base a ruling." 

If the E-0 Branch decided that the taxpayer was not to be treated 
as exempt, the procedure provided that this fact was to be conveyed to 
the SSS. If the E-0 Branch decided that the taxpayer was to be 
treated as exempt, the proposed favorable action was to be forwarded 
to the Exempt Organizations Conference and Review Staff for review. 
Under the procedure, if the Conference and Eeview Staff concurred 
with the decision of the E-0 Branch, the case was to be routed to the 
SSS before the final action was signed. If the SSS had objections to 
the issuance of a favorable determination, the basis for their objec- 
tions was to be given full consideration by the Conference and Review 
Staff. If the Conference and Review Staff, after reviewing the SSS 
comments, determined that a favorable determination was still "legal- 
ly required under the applicable law," the case was to be submitted to 
the Chief Counsel for concurrence or comments. The procedure fur- 
ther required that if the Chief Counsel concluded that a favorable de- 
termination was appropriate, the case was to be forwarded for further 
review to the Office of the Assistant Commissioner (Technical). 
Notification that the case was being sent to the Assistant Commissioner 
(Technical) was to be given to the SSS to permit them to present 
their views at the Assistant Commissioner's level. 

Methods of Coordination — In General 

Upon receipt of an exempt organization case referred to the Na- 
tional Office by the district, the tax law specialist to whom the case 
was assigned would usually review the case to determine if it were 
likely that the SSS would have an interest in it. If he thought the SSS 
would be interested, after consultation with his supervisor or branch 
chief, the tax law specialist would submit the case file to the person 
designated as the coordinator with the SSS. The coordinator would 
then transmit the case file to the SSS. A group of files would generally 
be transmitted to the SSS by the coordinator on a weekly basis. 

At the time the file was transmitted to the SSS, it usually contained 
the appropriate IRS application form, together with necessary at- 
tachments such as the organization's articles of incorporation, list of 
principal officers, and description of its anticipated operations. The 
file would also contain the document prepared by the district office 
to refer the case to the National Office, which indicated the reason for 
referral, e.g.^ sensitivity of the case. 

The SSS would examine the E-0 Branch files to determine whether 
the organization was one in which it was interested. In order to make 
this determination, the SSS occasionally would also seek additional 
information concerning the organization (or individuals closely con- 



96 

nected with the organization) from the Intelligence Division of the 
IKS, the Alcohol, Tobacco and Firearms Division of the IRS, the FBI, 
the House Internal Security Committee the Internal Security Sub- 
committee of the Senate Judiciary Committee, or the Senate Govern- 
ment Operations Committee. The SSS would also review its existing 
files to determine if information had been previously received with 
respect to the sponsors or principal officers of the organization. 

If the SSS determined it was interested in a particular organization, 
.and did not have an existing file on the organization, the SSS would 
normally set up its own file and request additional information from 
the FBI concerning the organization or its officers. The SSS would 
then return the E-0 Branch file by memo routing slip to the E-O 
Branch indicating that it w as either interested or not interested in the 
^organization. 

In cases where the SSS expressed an interest, it would attach to 
the routing slip any information it had obtained that it felt 
should be considered iby the E-0 Branch. Occasionally, where there 
was a time lag in obtaining information, the SSS would indicate 
that it had an interest in the organization and that information would 
be forwarded to the E-O Branch at a later date. If the SSS indicated 
an interest in a case, a card was attached to the E-0 Branch file 
jacket to indicate this fact. 

The information forwarded by the SSS was obtained from various 
sources, such as FBI reports (or summaries of these reports), news-- 
paper clippings, magazine articles, reports from the Intelligence and 
Alcohol, Tobacco and Firearms Divisions of the IRS, hearings con- 
ducted by congressional committees and memoranda prepared by the 
SSS. Much of this information concerned the associations, activities, 
and affiliations of the principal officers of the organization. For exam- 
ple, an individual's arrest record or his affiliation with radical or ex- 
tremist groups would be summarized from FBI reports. 

After the E-0 Branch had developed its proposed ruling position 
in a case in which the SSS indicated interest, the file would be resub- 
mitted to the SSS to determine if the SSS had any further comments 
or information to be considered. 

In reviewing the SSS and E-0 Branch files, the staff found only 
two cases which were considered for referral to the Chief Counsel's 
Office in accordance with the E-0 Branch Operating Procedure pro- 
visions. In both cases, referral to the Chief Counsel's office was sug- 
gested by the SSS. However, in neither case was a. referral formally 
made because a representative of the Chief Counsel's office informed 
the E-0 Branch that the office had no interest in the cases since no 
legal issues were involved. 

Of the 153 cases referred from E-0 Branch to SSS, the SSS indi- 
cated that it had an interest in 80 of these cases and indicated no inter- 
est in the remaining 73. Of the 80 that the SSS was interested in, ap- 
parently 14 involved organizations that were specifically listed in the 
attachment to the E-0 I^ranch operating procedure. (That is, appar- 
ently 14 were on the list of the "original" organizations. ) 

Funnfion of SSS and Use of SSS Information 

At the beginning, it was unclear exactly what role the SSS would 
play in the exemption process. In his stall" interview, l\iul Wright in- 



97 

dicated that he felt the SSS function was to furnish information to be 
considered by the E-O Branch rather than recommend positions to be 
taken with respect to a case, since the SSS did not have the expertise 
to address the substantive legal issues involved in a case. However, the 
E-0 Branch operating procedure did not limit the SSS function to 
furnishing information but could be reasonably interpreted to mean 
that the SSS would have a role in the ruling process with respect to 
substantive issues. Moreover, in several cases reviewed by the staff, the 
SSS specifically recommended that the organization should not be 
granted a tax exemption. 

Additionally the information submitted by the SSS created several 
problems for the E-0 Branch. In many cases, the information sent to 
the E-0 Branch related to the character of the individuals who were 
associated with the organization, rather than relating to the organiza- 
tion itself. It appeared that the SSS felt that an unfavorable ruling 
should be issued in cases where it had obtained information that showed 
that certain individuals were militants, agitators, etc., and had exten- 
sive arrest records. 

The E-0 Branch questioned the relevancy of much of the informa- 
tion submitted by the SSS. Even where the information appeared to 
be relevant, the E-0 Branch operating procedure stated that confident- 
ial information could not be used as the basis for a determination of 
exempt status, but should only "be used as a sources of leads for the de- 
velopment of information on which to base a ruling." Further, ques- 
tions arose as to whether information relating to the character of in- 
dividuals associated with an organization could be used where an or- 
ganization had not begun its actual operations, but had met the organi- 
zational requirements for exemption and had provided the IRS with a 
, proposed plan of operations that, if carried out, would meet the opera- 
tional tests for exemption. These questions were ultimately resolved by 
the Commissioner of IRS ^ after a series of meetings relating to two 
particular organizations seeking exemption. 

These two cases arose shortly after the issuance of the E-0 Branch 
operating procedure to coordinate information with the SSS, and in- 
volved organizations in which the SSS had indicated an interest and 
in which the E-0 Branch was proposing to issue a favorable ruling. In 
both of these cases, the SSS had obtained confi_dential information 
from the FBI, partly concerning the organizations involved, but 
primarily concerning individuals who were either officers of the orga- 
nizations or were to be actively involved in the activities of the or- 
ganization. Summaries of this confidential information were for- 
warded by the SSS to the E-0 Branch pursuant to the operating pro- 
cedure. These summaries stated that certain individuals involved with 
the organizations were known to be "mJlitants" and "agitators" and 
had provoked riots in the past. In addition, the SSS sent to the E-0 
Branch a summary of the criminal arrest records of certain of these 
individuals. After reviewing the information submitted by the SSS, 
the E-O Branch nevertheless concluded that the two organizations 
were entitled to Federal tax exemption under section 501(c) (3) of the 
Internal Revenue Code. Proposed favorable rulings were prepared 
and copies were forwarded to the SSS. However, in view of the inter- 
est expressed, the information submitted by the SSS and the newly 



98 

implemented operating procedure, the E-0 Branch requested a meet- 
ing with the Assistant Commissioner (Technical). 

According to memoranda reviewed by the staff, this meeting was 
requested in order to clarify the function of the SSS in the rulings 
process and to establish guidelines concerning the use of confidential 
information furnished by the SSS. The E-0 Branch felt that the dis- 
j)osition of these two cases would establish a precedent for handling 
future cases where the SSS disagreed with proposed favorable action 
by the E-0 Branch. In presenting the issues in a memorandum to the 
Assistant Commissioner (Technical), the E-0 Branch expressed con- 
cern with respect to the extent to which confidential information 
should be used as the basis for ruling action by the lES, especially 
when that informtion related to individuals and officers of the orga- 
nization and the organization would otherwise appear to meet the 
technical requirements for exemption. 

lES memoranda indicate that after reviewing the two cases, the 
Assistant Commissioner (Technical) submitted a proposed favorable 
ruling in each case to the Commissioner for his consideration and 
comments. The Assistant Commissioner (Compliance) also submitted 
a memorandum with his recommendations to the Commissioner for 
his consideration. In his memorandum, the Assistant Commissioner 
(Compliance) recommended that as to one of the organizations, a field 
review of its activities be conducted before issuing a favorable ruling, 
and as to the other organization a favorable ruling be issued, but an 
audit of its operations be conducted approximately six months later. 
Shortly thereafter, according to a memorandum in the files and inter- 
views with IRS personnel, a meeting was held by the Commissioner 
to resolve these two cases.*' It was decided that favorable rulings would 
be issued in both cases, but that a paragraph v/ould be inserted in the 
ruling letters advising the organizations that they should anticipate 
an audit in the near f uti^re. 

In effect, the decisions in these two cases established that the f unc- - 
tional role of the SSS in the rulings process was to collect and dissem- 
inate information and not to take part in the substantive determina- 
tion of exempt status of an organization. Secondly, it was established 
that the confidential information was not to be used as a basis for any 
ruling action but was only to be used as a source of leads for the de- 
velopment of additional information on which to base a ruling or to 
indicate that the organization's operations should be audited at a date 
in the near future. 

Nurriber of Cases Referred and Dispositions 

During the period from July, 1969, until August 7, 1973,^ approxi- 
mately 153 cases were referred to the SSS by the E-O Branch. (Ac- 
cording to the records of the E-0 Branch, 153 cases were referred to 
the SSS, and according to the log book maintained by SSS, 154 cases 

"The meeting was attended by the Assistant Commissioner (Technical), the Assistant 
Commissioner (Compliance), a representative from the SSS, representatives from the 
E-<) Branch, and various other individuals. 

^ The Commissioner's decision to disband the SSS v^as communicated to the SSS tvfo 
diiys before the press release of August 9, 1973, was issued. Accordingly, the SSS discon- 
tinued maintaining case status records on August 7, 1973, rather than August 9, 1973. 



99 

were received from the E-0 Brancli.') These organizations appear to 
be primarily characterized as follows : 

"Activist students" 11 

"Anti-war" 20 

"Black militant" 48 

"Civil rights" 27 

"Left vping" 4 

"Right wing 16 

Both "black militant" and "civil rights" 13 

Other 14 

Total 153 

The disposition of these cases can be classified under seven basic 
categories: (1) those receiving a favorable ruling or a favorable re- 
sponse to a request for technical advice; (2) those receiving an un- 
favorable ruling or an unfavorable response to a request for technical 
advice; (3) those which were issued a "pro forma" denial of exempt 
status^; (4) those that withdrew Uieir application for recognition 
of exempt status; (5) those which were issued a "no ruling letter ^°; 
(6) those whose exempt status was revoked; and (7) those in which 
a determination has not yet been made. The following table sum- 
marizes the disposition of the 153 cases that were referred to the SSS 
by the E-0 Branch. 

Favorable 89 

Unfavorable 20 

Pro forma denial 28 

Withdrawals 1 

No ruling letter 9 

Revoked 2 

Open 1 4 

Total 153 

^ As of the date of this report. 

If only the 80 cases in which the SSS expressed an interest are 
considered, the case dispositions are as follows : 

Favorable 42 

Unfavorable 12 

Pro forma denial 15 

Withdrawal 1 

No ruling letter 7 

Revoked 2 

Open 1 

Total - 80 

An analysis of the files indicated that much of the information 
submitted to the E-O Branch was not relevant to a determination 
that the organization was organized and operated for exempt 
purposes. In addition, in a few instances, the staff found that the 
SSS would recommend on the memorandum transmitting infor- 
mation to the E-0 Branch that a favorable ruling: not be issued or 



^ In addition, a few cases were referred to the SSS on an informal basis prior to issurance 
of the E-O Branch operating: procedure. However, it was not possible for the staff to de- 
termine the precise number since adequate records were not maintained prior to this time. 

* A pro forma denial is issued if the organization seeking exemption does not timely 
respond to a request by the IRS for additional information. 

1" A no ruling letter is issued if the proposed activities of the oranization are indefinite 
and are not described in suflficlent detail to permit the IRS to make a proper determina- 
tion that the proposed activities will clearly meet the particular requirements under 
which exemption is claimed. 

52-219 — 75 S 



100 

that the activities of the organization be examined prior to the issu- 
ance of a ruling. It is arguable that the SSS improperly attempted 
to perform functions delegated under IRS procedural regulations to 
the E-0 Branch by recommending substantive positions regarding the 
organizations' exempt status. Under the IRS procedural regulations, 
the determination of whether an organization should be granted 
«xemptiori from tax is the function of the E-0 Branch." 

In addition, it appears that little purpose was served by forward- 
ing information concerning the character of officers or other 
individuals associated with the organization. For example, the 
fact that a former director of an organization was shot to death should 
have little bearing on whether the organization qualified for exemp- 
tion (especially with respect to the organization's likely future 
operations). 

In some cases, coordination with the SSS did not result in a delay 
of more than several days in the rulings process. However, in many 
cases in which the SSS expressed an interest, the rulings process was 
delayed for one to three months. In one case, reviewed by the staff, 
the issuance of a ruling was delayed for approximately 5 months 
primarily as a result of coordination with SSS. In several SSS cases, 
personnel in the E-0 Branch found it necessary to apologize to the 
taxpayer and respond to Congressional inquiries as to the reason for 
the delay. 

Although the SSS did attempt to influence the decision of the E-0 
Branch in several cases, it apparently was unsuccessful in doing so. 
The E-0 Branch submitted test cases to IRS top management in 
order to clarify the function of SSS in the ruling process. As a result 
of this meeting, the role of the SSS was limited to collecting and 
disseminating information. In light of this and the staff's review of 
the E-0 files,^ it appears that the E-0 Branch did not permit an SSS 
recommendation to dictate a disposition which the E-0 Branch be- 
lieved to be improper. 



i§ 1113.925 of Statement of Organization and Functions of tlie IRS. 



X. PREVIOUS "IDEOLOGICAL ORGANIZATIONS" 

PROJECT 

Introduction 

During its investigation of the SSS, the Joint Committee staff 
learned that in 1961 and later years the Internal Eevenue Service had 
engaged in a special project dealing with "Ideological Organiza- 
tions." ^ 

Since it appeared that the Ideological Organizations project rnay 
have involved political influence on the IRS to examine organiza- 
tions similar to that involved with the Special Service Staff, the 
Joint Committee staff conducted an examination of this project. The 
staft''s examination was conducted generally in the same way as its 
examination of the SSS. The staff reviewed administrative docu- 
ments relating to the Ideological Organization project, interviewed 
seven people involved in the project, and also reviewed National Office 
files on organizations involved in the project. 

Smn/mary 

In the fall of 1961 the Internal Revenue Service began an examina- 
tion of extremist right-wing organizations. By spring 1962 the pro- 
gram included both left-wing and right-wing organizations; under 
this program, a total of 22 organizations were examined, 12 right-wing 
and 10 left-wing. This program apparently was stimulated by a public 
statement of President John F. Kennedy and also a suggestion by 
Attorney General Robert F. Kennedy. The first-phase program was 
substantially completed by mid-1963. 

In the summer of 1963 the Service began another program of exam- 
ining extremist organizations ; in some respects, however, this was an 
outgrowth and a continuation of the first program. The second pro- 
gram apparently was stimulated by White House communications to 
the Internal Revenue Service, including a telephone call from Presi- 
dent Kennedy to Commissioner Mortimer M. Caplin. This program 
involved 24 (later 25) organizations. While the_ program_ originally 
was to be balanced between both right and left-wing organizations, in 
practice it appears that 19 of the 25 organizations examined were right- 
wing. (This characterization was made by ih.& IRS.) 

Under the first-phase program, the National Office directed the field 
to audit the organizations in question, but there was little involvement 
of the National Office in the audit process itself. In the second-phase 
prograjn the field, at the direction of the National Office, collected in- 
formation for the National Office. The National Office then analyzed 
tliese facts to determine if each organization in question should be 
treated as tax-exempt. This project included a study of organizations 



^ In the course of the project, this term was defined to mean "organizations seeking to 
educate the pnhlic in currp'ntlv controversial fields." The organizations "direct their ef- 
forts toward influencing the beliefs or actions of others with reference to certain 
predetprmined crovernmental. social or economic ends." CSeptember 9. 1063. memorandum to 
Commissioner Mortimer M. Caplin from Mitchell Rogovin, Assistant to the Commissioner.) 

(101) 



102 

that might be engaged in activities that could raise questions about 
their exempt status {e.g.^ whether they properly could be treated as 
tax exempt "educational" organizations). 

The staff has found no evidence that the White House or the Attor- 
ney General supplied names of organizations to be audited. How- 
ever, a member of the White House staff reviewed the list of organiza- 
tions proposed for the second-phase audit program and suggested that 
two organizations be deleted. These organizations were deleted from 
the list for audit, although one was subsequently added back. Addi- 
tionally, it was reported that the Attorney General suggested that the 
IRS move its investigation of one particular organization along in 
rapid fashion. 

The first-phase program was largely completed by July 1963. (In 
some cases, the examination of an organization was not complete and 
it was made part of the second-phase program.) By this time, it 
appears that the IRS had recommended revocation of the exempt 
status of two right wing organizations and had notified another right 
wing organization that its exempt status would be revoked. Also, 
there were adjustments on audit with respect to two non-exempt right 
wing organizations, and there had been a disallowance of deductions 
in one case for contributions to a non-exempt organization. The staff 
did not find any information, that the IRS made any adjustments on 
audit, or recovation of exempt status, with respect to the left wing 
organizations in the first-phase program. 

The second-phase program was largely underway by tlie end of 
1963. For the most part, it was completed by 1966. By 1967, the exempt 
status of 4 organizations examined under the program had been re- 
voked ; of these organizations, 3 were right-wing and 1 was left-wing. 
(In the case of one of the right wing organizations, revocation had 
been recommended in the first phase program. ) 

First-Phase Program 

Presidential statemekts^ etc. — In ISTovember 1961, President John F. 
Kennedy spoke in Seattle, Washington (November 16, 1961) and in 
Los Angeles, California (November 18, 1961), criticizing right-wing 
extremist groups. Later that month (November 29, 1961), at a news 
conference. President Kennedy was asked about financial contribu- 
tions to right-wing extremist organizations. President Kennedy an- 
swered the question by stating that as long as the requirements of the 
tax laws are met, "I don't think that the Federal Government can in- 
terfere or should interfere with the right of any individual to take any 
position he wants. The only thing we should be concerned about is that 
it does not represent a diversion of funds which might be taxable to — ■ 
for nontaxable purposes. But, that is another question and I'm sure 
the Internal Revenue System examines that." ^ 

In addition to President Kennedy's statement, there was interest 
shown in right-wing organizations by the Justice Department. In his 
interview with the staff, Mitchell Rogovin, then Assistant to the Com- 
missioner, said that on November 16, 1961, he received a telephone call 
from John Seigenthaler, then Special Assistant to Attorney General 
Robert F. Kennedy. Mr. Rogovin said that Mr. Seigenthaler asked 

- PnMic Paper/i of the Prmide'nt.i of the United Statef:, Join F. Kennedy, January 20 to 
Decemher SI, 1061, at 762 (U.S. Government Printing Office 1962). 



103 

about the tax-exempt status of four or five organizations generally- 
considered to be right-wing. Mr. Rogovin said that, in response, Mr. 
Seigenthaler was told whether or not these organizations were exempt 
and whether the organization had been audited recently. (A letter of 
May 15, 1962, from Commissioner Mortimer M. Caplin to Attorney 
General Kennedy refers to this inquiry from Mr. Seigenthaler.) 

In his interview with the staff, Mr. Caplin said he had no recollec- 
tion of this inquiry from Mr. Seigenthaler. Mr. Caplin also said that 
he did not recall President Kennedy's news conference or the reaction 
of the Service to the conference. 

Mr. Seigenthaler said, in his staff interview, that his calendar shows 
several telephone calls with Mr. Rogovin during the period Novem- 
ber 13, 1961, to December 1, 1961, but does not show a telephone call or a 
meeting w^ith Mr. Rogovin on November 16, 1961. Mr. Seigenthaler told 
the staff that he does not recall the subject of these calls and that his 
date book does not show the subject. He also said he does not recall 
any discussion or inquiry with Mr. Rogovin regarding right-wing 
groups. 

A later memorandum (July 11, 1963) from Commissioner Caplin 
to Myer Feldman, then Deputy Special Counsel to the President, 
links the first-phase audit program to President Kennedy's November 
1961 news conference, and to a "suggestion of the Attorney General" 
that the Service review its activities "on the tax status of certain ex- 
tremist organizations." ^ 

Response hy the Service.— On November 30, 1961, William H. Loeb, 
then Assistant Commissioner (Compliance), sent a memorandum 
to Dean Barron, Director' of the Audit Division, regarding Presi- 
dent Kennedy's news conference of November 29, 1961. Mr. Loeb 
attached a newsclipping about the press conference, and stated in the 
memorandum "You will note the President's references to the fact 
that 'As long as they meet the requirements of the tax laws,' etc. I 
think it behooves us to be certain that we know whether the organiza- 
tions are com.plying with the tax law as a matter of fact." Mr. Loeb's 
memorandum stated that "I have asked Mr. Rogovin to ascertain the 
names of some of the organizations that we might use for a sample 
check. Please have someone contact him to secure the same hi order 
that appropriate audits ma}^ be made," 

In a memorandum of December 20, 1961, Mr. Rogovin supplied Mr. 
Barron with a list of 18 organizations. The bulk of these organizations 
apparently came from articles appearing in Newsweek and Time 
magazines. 

An audit of some of these organizations was begun in early 1962. 
According to a March 9, 1962, memorandum, from the Director of the 
Audit Division, to the Assistant Commissioner (Compliance), on 
January 25, 1962, the National Office Audit Division requested that 
the Regional Commissioners in New York and San Francisco begin 
examinations of "six large corporate taxpayers" who were alleged 
financial backers of "extremist groups." Additionally, the March 9, 
1962, memorandum states that (on that date) the National Office 

3 The memorandum begins by stating: "In the fall of 1961, at the suggestion of the 
Attorney General, the Revenue Service reviewed its activities on the tax status of certain 
extremist organizations. In November 1961, a test audit program of 22 alleged extremists 
groups on both sides of 'center' (list attached) was begun. . . ." 



104 

Audit Division sent a similar request to the Assistant Regional Com- 
missioner (Audit) in San Francisco, asking that examinations be 
made of three right-wing organizations. In addition, requests for the 
examination of eight additional right-wing organizations were con- 
templated. Both exempt and non-exempt organizations were to be 
included in this audit program. 

At this early stage, the program appeared to be focused entirely 
on right-wing organizations. It appears, also, that this focus concerned 
some people in the Service. In the March 9, 1962, memorandum, it was 
stated that "We have used the term 'political action organization' 
rather than 'right-wing organization' throughout this discussion. This 
has been done to avoid giving the impression that the Service is giving 
special attention to returns filed by taxpayers or organizations with 
a particular political ideology." However, by the spring of 1962 the 
program had become balanced between right-wdng and left-wing 
organizations. 

By May 1962, the audit program included 12 right-wing organiza- 
tions and 10 left-wing organizations. In his interview, Mr. Rogovin 
said that he felt very strongly that there should not be an audit pro- 
gram of one side of the problem, and that the program should not 
include only right-wing organizations, but should be balanced out, 
left, center, and right.* 

It appears that some of the right-wing organizations in the audit pro- 
gram were chosen from the list of 18 organizations (described above) 
that were found in Time and Newsweek magazines and submitted to 
the Audit Division by Mr, Rogovin in December, 1961. In his staff 
interview, Mr. Rogovin said that he did not ask Mr. Seigenthaler or 
anyone else outside the Service about choosing the rightwiiig organiza- 
tions to be audited. However, Mr. Rogovin said that he did have 
difficulty obtaining the names of left-wing organizations and said that 
he may have asked the FBI for names of these organizations. 

In his interview, Mr. Caplin said that it was very unlikely he would 
have talked with Mr. Rogovin about the names of the organizations 
to be audited. Mr. Caplin also said that he did not know the sources of 
the organizations which were chosen for audit under the first-phase 
program. 

Reports to Undersecretary Fov)ler and Attorney General Ken- 
nedy. — As noted above, by mid-May, 1962, the first phase program 
included both right-wing and left-wing organizations. In a report 
(May 14, 1962) to Undersecretary of the Treasury Henry Fowler, 
Commissioner Caplin listed 12 right-wing "extremist groups" whose 
activities were being examined by the field at the direction of 
the National Office. Additionally, "to avoid any possible charges that 
the Service is giving special attention to a group with a particular 
ideolo.fn^" the memorandum states that the Service is planninir to 
examine the returns of left-wing organizations; 10 such organizations 
to be audited are listed in the memorandum. Also, the memorandum 
states that not only are these groups to be examined, but the Service 
will *'be alert for non-compliance" by financial backers of such groups. 

* In a nipmnranduni of April 2. 10(52, to Mr. Loeb. Mr. Ropovin Ptated that "When thp 
tfst .Tidlt p'-rttrrnm rosrnrd'ns Politii^.Tl action ortr.n nidations wns first considered It was 
aereed orjrnnlzntions on hoth sides of 'center' would he examined." A list of "alleged left 
of center" organizations was attached to this memorandum. 



105 

A similar report (including the names of the 22 right- and left- 
wing organizations being audited) was sent the next day in a letter to 
Attorney General Eobert F. Kennedy from Commissioner Caplin. 

In his staff interview. Mr. Caplin said that Undersecretary Fowler 
had special responsibilities with respect to the Internal Revenue Serv- 
ice and that there were frequent briefings of Mr. Fowler with respect 
to unusual activities and activities of special significance taking place 
in the Service. Mr. Caplin indicated that it would not be unusual to 
include in a report to Mr, Fowler the names of the taxpayers involved 
in such a test-audit program. 

Mr. Rogovin said, in his staff interview, that Commissioners have 
historically reported to the Undersecretary or an Assistant Secretary 
of the Treasury with respect to matters of significance and sensitivity. 
Mr. Rogovin stated that the Ideological Organizations program was 
not secret and that this type of report was common. 

Mr. Caplin and Mr. Rogovin also said that the letter to Attorney 
General Kennedy was to keep him advised because of his prior interest 
(or that of Mr. Seigenthaler) in this area. 

Develofment of fii'st-phase 'prografm. — A little over one year later 
(on May 24, 1963) , Commissioner Caplin sent a report to Undersecre- 
tary Fowler describing the status of the first phase program. By this 
time, eight right-wing organizations had been audited, four of those 
organizations had claimed tax-exempt status, and four did not. Of the 
exempt organizations, revocation of exemption was recommended by 
the field offices in two cases. In the other six cases, no changes in tax 
liabilities were recommended. 

Of the left-wing groups, five had been audited hj May 24, 1963, in- 
cluding two exempt organizations. The report to Undersecretary 
Fowler does not indicate that any changes were recommended as a 
result of these examinations. 

Also, in the course of the program, one taxpayer had been found 
who had claimed a deduction for payments to a non-exempt political 
action organization. 

By this time, the National Office had decided that the field could not 
readily handle this kind of audit program. In his May 24, 1963, report 
to Undersecretary Fowler, Mr. Caplin stated that this type of audit 
is quite different from other examination work because it was neces- 
sary (with respect to exempt organizations) to determine if a sub- 
stantial part of the activities of the organization is the carrying on 
of propaganda. Consequently, the files on all examinations being con- 
ducted under the program had been brought to the National Office 
for study and recommendation. Additionally, Mr. Caplin noted that 
the Service had tentatively concluded that future efforts in this area 
should be directed to exempt organizations, and that after the first 
phase program was completed, the Service would determine the need 
for increased audit activity on political action organizations. Attached 
to the ]\Iay 24, 1963, memorandum to Mr. Fowler was a synopsis on 
each organization examined by that time under the program. 

Mr. Caplin, in his interview, stated that he did not recall the 
memorandum to Undersecretary Fowler of May 24, 1963. Additionally, 
Mr. Caplin stated that the Service was concerned with how an ideo- 
logical organization is to be defined and how this was to be distin- 



106 

guislied from an educational activity. Also, Mr. Caplin said there 
was concern with how a revenue agent could audit an organiza- 
tion like this, since agents are accounting- oriented and generally 
are not trained to judge whether an organization is a political action 
organization or an educational organization. Mr. Caplin said that he 
thought th^ iirst-phase program was a sample audit, in a balanced 
manner. 

Mr. Rogovin told the staff that any organization that expressed 
ideological concerns and called itself "educational" was a problem 
for the Service to audit, because of the usual financial focus of an 
audit and because of the definition of "educational." Mr. Rogovin 
said that it was believed a National Office project could assist the 
auditing agents. 

Second-Phase Program 

White House coimnunications. — In summer 1963 (July 5, 1963), 
Myer Feldman, then Deputy Special Counsel to the President, re- 
quested a report from Commissioner Caplin about Internal Revenue 
Service activities involving "extremist groups." In their staff inter- 
views, Mr. Feldm.an and Mr. Rogovin indicated they thought Mr. 
Feldman's inquiry may have been oral. Mr. Feldman also thought the 
inquiry might have arisen in the course of preparing for a press 
conference. 

About a week later (July 11, 1963), Commissioner Caplin replied 
to this request with a memorandum on Revenue Service activities 
concerning extremist groups. Mr. Caplin's memorandum describes 
the history of the first phase program, including an up-to-date 
summary of the results of the field audits. By this date, the 
revocation of exempt status of two right-wing organizations had 
been recommended, and one other right-wing organization had been 
notified that the Service intended to revoke its exemption. In addi- 
tion, deductions had been denied for contributions or subscription pur- 
chases for a right-wing publication by at least one corporate taxpayer. 
Also, adjustments had been proposed with respect to two right-wing 
organizations that were not tax exempt. With respect to left-wing 
organizations, Mr. Caplin's memorandum states that nine examina- 
tions had been completed. However, the memorandum does not state 
whether the exempt status of any left-wing organizations had been 
revoked or whether there had been any adjustments with respect to 
non-exempt left-wing organizations. 

Mr. Caplin's memorandum to Mr. Feldman described the adminis- 
trative difficulties involved in having a revenue agent audit an "educa- 
tional" organization to determine if the organization provided a full 
and fair exposition of pertinent fact. The report additionally stated 
that the Service was discussing with the Treasury the possibility of 
legislative changes. Legislative changes were suggested to better de- 
fine and limit political action of exempt organizations and to curtail 
certain deductions used to support extremist causes. In addition, this 
memorandum indicated that there were future plans for an expanded 
audit program of ideological organizations. 

On July 23, 1963, President Kennedy called Commissioner Caplin 
regarding his memorandum to Mr. Feldman, Mr. Rogovin's notes 
about that call state that President Kennedy wanted the Service "to 
go ahead with aggressive program — on both sides of center." These 



107 

notes indicate that President Kennedy also mentioned that Senator 
Yarborough may hold hearings on this problem in January. 

Mr. Caplin said in his staff interview that he believes President 
Kennedy's call occurred because Mr. Feldman might have thought that 
the Service was dragging its feet and was not aggressive enough. Mr. 
Caplin stated that he said to President Kennedy that if there was to 
be any program in the ideological field, it had to be on both sides of 
center. 

Response hy the Service.— On July 26, 1963, a Revenue Service task 
force met on "political action organizations." There were five people 
at this meeting, all from the Service; Mr. Rogovin chaired the 
meeting. This appears to have been the first such meeting after the 
telephone call to Commissioner Caplin from President Kennedy and 
appears to have been the beginning of the second-phase project, 
although to some extent it was" a continuation of the first-phase pro- 
gram.^ (In his interview, Mr. Caplin said he did not recall telling Mr. 
Rogovin to do anything specific with respect to the telephone call 
from President Kennedy.) 

A memorandum of the meeting of July 26, 1963, sets out the way this 
project would be approached. The project was considered to be an 
"extension of the technical advice procedure," with the National Office 
advising the field with regard to certain organizations and their ac- 
tivities. This memorandum states that under the program, a list of 
right-wing and left-wing organizations was to be prepared ; two em- 
ployees of the Service were to start this work. The project was to "first 
deal with right-wing groups." The cases in the first phase program 
were to be absorbed in the new project. The field was to collect 
information on the organizations involved. The National Office 
then would analyze the cases and advise action to be taken by the field. 
The memorandum states that Mr. Rogovin emphasized that the Serv- 
ice is to "go up the middle" ; the program is "directed to both ex- 
tremes;" the object is to be sure "that tax-exempt money is not being 
used for political purposes." 

In his interview witli the staff, Frank Chapper, then Tech- 
nical Advisor to the Division Director of the Tax Rulings Divi- 
sion and who participated in the second-phase program, said that he 
did not know about any White House interest in the ideological or- 
ganization project. However, he feels that the technical organization 
of the Service was interested in an in-depth study of ideological or- 
ganizations because experience to that point had been very trouble- 
some. Mr. Chapper said that the goal of the project was to come up 
with workable guidelines as to how to approach an audit or inquiry 
into the activities of an ideological organization. 

By early August, 1963, a list had been made of organizations where 
there was "probable cause" for the Service to proceed to examine the 
organization. The list was compiled by members of the task force who 
were employees of the Service. A memorandum of August 8, 1963, to 
Mr. Chapper from an employee of the IRS working on the task force, 
stated that information on these organizations came from Service files, 

5 In July, 1963, the Service was eontiniiing: its first phase test-anclit program, and in his 
memorandum to Mr. Feldman, Mr. Caplin said that an expanded program was planned. 
However, in his interview. Mr. Rogovin said that the first-phase program was dying. 
(In April 1963, the first phase program was one of 23 exempt organization areas listed 
by the Assistant Commissioner (Technical) where there was "action required" by the 
Technical Division.) 



108 

from an outside publication called "Group Research", and from books 
and periodicals. In addition. Congressional hearings and committee 
files were to be developed. The memorandum noted that right-wing 
:groups predominated in the list and indicated there was some trouble 
in developing names of exempt left-wing organizations, because it ap- 
peared that "the left-wing has been scrutinized a little more severely" 
since many left-wing organizations had less-preferred exempt status ^ 
or were not treated as tax-exempt at all. 

Mr. Chapper said in his staff interview that the organizations in the 
second-phase program were initially chosen by a couple of IRS em- 
ployees who went through files. After a number of organizations had 
been tentatively chosen, the list was boiled down, in a joint nieeting of 
perhaps six IRS people who were on the task force. Mr. Chapper 
said that the criteria for choosing an organization for the program in- 
cluded whether the organization was trying to influence the legislative 
process, and also the publicity the organization was getting. 

By August 21, 1963, a list of 24 ideological organizations had been 
proposed for the second-phase project. Seven of these had also been 
part of the first phase program.^ 

Although the second-phase program was originally to be balanced 
between right- and left-wing organizations, it appears that this 
did not turn out to be the case. A "profile" of the organizations in- 
cluded in the second-phase project, written by two members of the Rev- 
enue Service task force in December 1963, states that "the term right- 
wing will be used to denominate" 19 of the 24 organizations ultimately 
included in the second-phase program. 

Meetings at the White House and with the Attorney General. — Mr. 
Rogovin's notes show that on July 29, 1963, and August 21, 1963, he 
met with Mr. Feldman at the White House to review the second-phase 
audit program and to bring Mr. Feldman up to date on the program. 
A memorandum prepared by Mr. Rogovin states that during the Au- 
gust 21, 1963, meeting with Mr. Feldman, Mr. Rogovin went over with 
him the list of 24 organizations then scheduled for the program. 
The memoi'andum states that in reviewing the organizations, Mr. Feld- 
man suggested deletion of two organizations (one right-wing and one 
left-wing). These two organizations were, in fact, subsequently de- 
leted. 

Mr. Feldman said in his staff interview, that he remembered meet- 
ing with Mr. Rogovin, but did not remember the details of the conver- 
sations. Mr. Feldman did not remember talking with Mr. Rogovin 
about deleting two organizations from Xho, project. Mr. Feldman said 
he believed that the Revenue Service chose the organizations covered 
by the project. In his interview, Mr. Rogovin said he could not recall 
why Mr. Feldman had suggested deleting two of the organizations 
originally suggested. Mr. Rogovin also stated that Mr. Feldman did 
not suggest adding any organizations to the list to be audited. 

A memorandum written by Mr. Rogovin states that on August 20, 
1963, he met with Attorney General Kennedy, briefing him on the 
status of this project. The memorandum also states that Attorney Gen- 
eral Kennedy indicated an interest in the status of the Service's in- 



■They were exempt under sec. 501(c)(4) and not sec. 501(c)(3) of the Code. 

' Tlie 24 orfrnnizations were chosen from a list of 109 organizations. It appears that the 
rest of the 109 organizations were not the subjects of a special audit program, although 
In the early stages of the second-phase program there may have been consideration of 
later extending the program to all 109. 



109 

vestigation of one right-wing organization, and suggested that the 
Service "move this particular case along in a rapid fashion." (The 
"charitable" exempt status of this organization (under sec. 501(c) 
(3) ) was revoked by the IRS. Subsequently, the organization applied 
for, and received, a determination that it was an exempt "social wel- 
f ar" organization (under sec. 501 (c) (4) ) .) 

During the first few months that this program was in effect, there 
were some changes in the organizations included. The staff has found 
no evidence, however, that any of the organizations covered by the 
project were included because of a suggestion by anyone in the White 
House or in the Attorney General's office. However, as noted above, it 
appears that the organizations were discussed with a White House staff 
member. 

Conduct of the second-phase program. — Generally, in the second 
phase program, the field offices were to gather facts about the organiza- 
tions in question. Suggested guidelines for the field in handling these 
cases were developed by the National Office task force. Since the ques- 
tion was whether the organizations were "educational" under the law, 
the guidelines instructed the field to include a discussion of publica- 
tions, broadcasts, forums, lectures and research, as well as finances, 
related groups, attempts to influence legislation, and demonstrations. 

As information was received by the field, employees in the National 
Office who were working on the task force prepared factual analyses and 
made recommendations as to tho, disposition of eEich case. By the end 
of November 1963, investigation reports had been received from 
the field on 19 of the 24 organizations included in the program. By 
February 1964, 18 of the 24 cases had been analyzed by the National 
Office. (It appears that at least four National Office employees par- 
ticipated in this analysis, and there were another five employees who 
participated in the program at this time.) 

In February, 1964, it was suggested that there were reasonably 
clear grounds for revocation of exemption in six of the cases analyzed. 
The next step was to prepare technical advice memoranda to the field 
on those cases where a revocation was to be recommended. 

During this period, the task force also considered amendments to 
the Internal Revenue Code and changes in the Regulations in the 
ideological organization area. To facilitate this consideration, the 
task force developed an overall analysis of the 24 ideological organiza- 
tions in question, dealing with the groups' organization, the media 
used by the organizations to contact the public, the subject matter 
covered by the organizations in their publications, etc., the organiza- 
tions' finances, and other aspects of these organizations. 

Reports to White House and to the Undersecretary of the Treas- 
ury. — On March 23, 1964, Mr. Rogovin sent a status report on the 
second-phase project to Myer Feldman in the White House. Generally, 
this report summarized the activity undertaken to date in the course of 
the project, stating that there had been an analysis of each organiza- 
tion, that an overall profile of characteristics of the organizations had 
been developed, and that work had been done on legislation and regu- 
lations. Also, the report described the technical approach developed to 
analyze the organization's activity. The memorandum said the next 
action was to be the preparation of technical advice memoranda to the 



no 

field offices, setting out the basis for revocation of an exemption where 
that was warranted. Additionally, examples of the types of analyses 
prepared on each case were included with the memorandum.^ 

Mr. Feldman said in his interview that he believes this was the last 
contact he had with respect to the Ideological Organization Project. 
Mr. Feldman said that this memorandum was received after the death 
of President Kennedy, and that he believes the Johnson administra- 
tion did not have any further interest in the project. 

At the end of 1964, it was decided that when the task force recom- 
mended an exemption be revoked, the recommendation would be sent 
to the Chief Counsel for informal legal review. This review would 
result in one of three general classifications: situations where there 
was a prima facie case for revocation, situations which would require 
further development before a conclusion could be reached, and no- 
change cases. By December 1964, 13 cases had been referred to Chief 
Counsel for review. Additionally, a proposed revocation of exemption 
had been sent to two organizations. 

By December 1964, the task force had recommended revocation of 
exempt status of 15 organizations (14 right-wing ^ and one not right- 
wing) . No change was recommended in the case of nine organizations 
(five right-wing and four not right-wing) .^° 

Later status reports. — In April 1966, a report was given to Commis- 
sioner Sheldon Cohen on the status of the ideological organization 
cases. With respect to the 15 cases proposed for revocation and sub- 
mitted to Chief Counsel for consideration, in 3 cases exemption was 
revoked or was in the process of being revoked ; 5 cases had been closed 
or were in the process of being closed because revocation was not war- 
ranted ; 3 cases had been referred to the field for further investigation ; 
and 4 cases were then pending in the Chief Counsel's office. The 3 cases 
in which exemption was revoked were all right-wing organizations. 

A further status report was done in November 1967. At this time, 
a revocation letter had been mailed to 4 organizations (3 right-wing 
and 1 left-wing). In 14 cases there were no changes; 2 cases were re- 
turned to District Directors for additional development. Additionally, 
5 cases were then under active consideration by the National Office. The 
status report noted that the major purposes of the study were fulfilled 
early in 1966. By that time, guidelines had been developed for tech- 
nical personnel to dispose of most of the situations encountered in the 
area. One Eevenue Ruling had been published (Rev. Rul. 66-256) 
and two Revenue Rulings and one Revenue Procedure were in process. 

Sheldon Cohen (Commissioner of Internal Revenue from January 
25, 1965, to January 20, 1969) told the staff that after he became Com- 
missioner there was decision to wind down the project and put these 
examinations back into the normal channels. 



* Later reports on this project were provided by the IRS to the Secretary of the Treasury 
or the Undersecretary of the Treasury. Such reports were prepared on Aug. 17 1964, 
Sept. 30, 1964, Dec. 24, 1964, Feb. 8. 1965, and Mar. 8, 1965. Generally, those memoranda 
were to bring the Secretary of the Treasury (or the Undersecretary) up to date on 
developments in this project. 

» The characterization used Is that which was applied by the Service In December 1963. 

1" There were 25 organizations In the project at this time. However, one had been just 
added, bo it was too early for a recommendation to have been made. The organization added 
was not right-wing. 



XL COMMITTEE CONSIDERATIONS 

Accumulation of Information on Political Activities 

A basic function of the Special Service Staff was the accumulation 
of information on individuals and organizations associated with "ex- 
tremist organizations" of both the left and right sides of the political 
spectrum. While the Revenue Service must accumulate information on 
individuals and organizations to properly carry out its taxing func- 
tions, a basic question raised because of the SSS activity is whether 
the IRS should ever accimiulate information on the political activities 
of organizations or individuals. 

As described above (in section I, Introduction) it appears that the 
IRS is required to acquire information on political activities of certain 
tax exempt organizations in the administration of the tax laws. How- 
ever, it is questionable whether information on political activities of 
organizations that are not tax-exempt (or on individuals) could be 
considered tax-related information except to the extent a business 
deduction is denied for expenses incurred in the participation or in- 
tervention in a political campaign for public office or in connection 
with grassroots lobbying. 

The reason for questioning the keeping of political information in a 
file is that there are significant questions regarding a possible adverse 
impact on the exercise of these activities.^ 

The staff understands that the IRS is studying what constitutes 



1 Several suits have been brought against various governmental bodies which were 
gathering and, in some cases, disseminating information about certain groups and in- 
dividuals. The principal contention in these suits was that the First Amendment rights 
of free speech and association were being "chilled" by the mere existence, without more, 
of unreasonably broad governmental investigative and data-gathering activity. 

In 1972, in the case of Laird v Tatum., 408 U.S. 1 (1972), the Supreme Court held that 
the mere existence of a data-gathering and disseminating system maintained bv the United 
States Army with respect to public activities possibly having potential for civil disorder 
did not present the court with a "justiciable controversy" with respect to which any de- 
termination could be made. The Court ruled that it was unable to hear the merits of the 
case because the complainant had failed to show that it had sustained or was immediately 
in danger of sustaining a specific injury. 

Subsequent cases Involving this contention have followed the Tatum decision and denied 
any relief to the complainants : California Bankers Association v. Schultz, 416 U S 21 
(1974) (records kept pursuant to the Bank Secrecy Act) ; Fifth Avenue Peace Parade Com- 
mission V. Gray, 480 F. 2d. 326 (2d Cir. 1973) (information compiled by FBI with respect 
to upcoming demonstration) : Finley v. Hampton, 473 F. 2d ISO (D. C. Cir. 1972) (infor- 
mation compiled by Civil Service Commission and HEW as a result of security Investigation 
of FHA employee) ; Donohoe v. Duling, 465 F. 2d. 196 (4th Cir. 1972) (maintenance by 
Richmond, Virginia police of files containing photographs of participants in demonstrations 
and other public meetings) ; Philadelphia Yearly Meeting of the Religious Society of 
Friends, et al v. James H. J. Tate, Mayor, City of Philadelphia, et al, 382 F. Supp. 547 
(E.D. Pa. 1974) (maintenance by Philadelphia, Pennsylvania police of dossiers on various 
groups and individuals). (The court, in this case, also held that the public disclosure of the 
name of a group with respect to which a file was being kept did present a controversy 
worthy of the court's consideration, but that the "chilling effect" was not substantial 
enough to warrant a ruling for the complainant.) 

In two recent cases, the complainants were at least partially successful : Socialist Workers 
Party v. Attorney General of the United States, 510 F. 2d 253 (2d Cir. 1974) (injunctive 
relief denied regarding FBI surveillance of youth organization convention, but court pro- 
hibited dissemination by FBI of convention attendance information to the Civil Service 
Commission) ; Paton v. La Prade, 382 F. Supp. 1118 (D. N.J. 1974) (while denying damages 
for the FBI's maintenance of an investigative file regarding possible subversive activities, 
the court exercised its equitable powers and, finding that the FBI file contained no useful 
information to the exercise of its law enforcement functions, ordered its destruction). 

(Ill) 



112 

tax-related information which appropriately may be maintained in 
IRS files. The committee may wish to consider reviewing with the IRS 
the conclusions of that study, with special emphasis on the proper role 
of both the National Office and the field offices of the Service in collect- 
ing and maintaining information on political activities of individuals 
and organizatons. 

Basis for Revieioing C om'pJiance With the Tax Laws 

It appears that, although not well defined, the basic criterion for 
including an individual or organization in the Special Service Staff 
files was association with "extremist" or "civil disobedience" or 
"activist" activities. These files formed the basis for checking com- 
pliance with the tax laws and consequently the basis for referrals by 
the Special Service Staff to the field and for consequent field action. 

It would appear questionable whether there should be an organiza- 
tion in the IRS such as the Special Service Staff which in part appears, 
to have been directed toward specific types of activist organizations.. 
It seems inappropriate for the Revenue Service, in the course of ad- 
ministering the tax laws, to focus its activities on people who ar& 
engaged in civil disobedience, etc., unless there is information that 
they have any propensity to evade the tax laws. Of course, no law 
provides that people who engage in political dissent can ignore the 
requirements of the tax laws. If audits or collection activity are politi- 
cally oriented, this can act to the disadvantaged of one political group 
(or a spectrum of political opinion) through the taxing powers. The- 
potential adverse impact on the tax system because of such action by 
the Service (not to speak of the implications this would have for our 
basic system of government) would appear to require that the Service 
take special care to avoid actions that are determined on the basis of 
political activity alone. However, where the political action involves 
disobeying and perhaps hindering the administration of the tax laws, 
it seems necessary for the Service to focus its efforts on the orga- 
nizations and individuals involved. A closer question would appear 
to arise where the political activities are not directed to tax resistance,, 
but involve organizations or individuals that, as a matter of fact, 
frequently do not meet their tax responsibilities. 

Relationship Between the White House and Internal Revenue Service 
In the case of the Ideological Organizations Project, it appears that 
both the first-phase and the second-phase programs were stimulated 
by the White House. In the case of the Special Service Staff', it ap- 
pears that the White House requested that the Service take some action 
regarding tax-exempt activist organizations. 

In each of these two cases, there were policy directions from the 
White House that the Service should generally enforce the laws with 
respect to exempt organizations engaged in political activity. There 
also were suggestions or guidance from the White House with respect 
to specific organizations that might be audited. 

It appears that when the White House becomes involved in giving 
guidance or suggestions to the Service that particular organizations, 
should 'be examined, there is significant potential for political use of 
the Service. Even if tlie White House actions have no motive other- 
than equitable compliance with the tax laws, nevertheless similar ac- 



113 

tions could be used at other times with other motives. In addition, it 
appears that such relationships tend to substantially reduce the faith 
of taxpayers in the impartiality of the administration of the tax sys- 
tem. This is especially true if the White House becomes involved in 
an audit of taxpayers who may be political opponents of the incum- 
bent administration. 

A somewhat different issue is whether the White House should sug- 
gest that the Service undertake an audit program of activist organiza- 
tions in general. It may be argued that, because of the abuse that is 
possible in this area and its consequences for the tax system as a whole, 
the White House should completely avoid any such suggestions. 

On the other hand, it can be argued the Service should not be left 
entirely on its own in this regard, because the Service by itself could 
begin to direct its actions toward one end or the other of the political 
spectrum. The Committee may wish to consider whether public Con- 
gressional oversight hearings could sufficiently ensure that the Service 
will act with an even hand in this very sensitive area. While Congress 
also has tried, and may in the future attempt, to exert influence upon 
the Service, the Committee may wish to consider whether the likeli- 
hood that Members of Congress could exert their own pressure on the 
Service to influence its examinations would be sufficiently reduced 
through public hearings. 

Another issue involves communication between the Service and the 
White House. In order to be sure that communications with the White 
House come to the attention of the Commissioner, who is responsible 
for the independent action of the IRS, the Committee may wish to con- 
sider whether communications between the White House and the Serv- 
ice (both to the Service and from the Service) should go through offi- 
cially designated channels. To the extent such communications are not 
written, it may be appropriate to have an established system within 
the Service of reporting such communications.^ Also, it nv^j be appro- 
priate for the Service to provide the committee, on a periodic basis, 
with a list of requests from the White House concerning information 
on specific individuals and organizations. 

Information To Be Used in Determining Exempt Status 

The Special Service Staff provided the Exempt Organizations 
Branch with confidential information on individuals associated with 
organizations that were involved with a determination of their ex- 
empt status. In many cases, this information concerned the character 
of individuals associated with these organizations. Also, often the 
information concerned previous activities of individuals when the 
question before the Exempt Organizations Branch concerned the fu- 
ture program of an organization. 

In the usual case, the Internal Revenue Service makes a deter- 
mination as to whether an organization is to be treated as 
exempt or taxable based on the information submitted by the organiza- 
tions. In many cases, the organization has not yet begun its operations. 
The committee may wish to explore whether the IRS should go be- 
yond the form and substance stated in an exemption application and 
seek additional information with respect to certain organizations 
where IRS experience indicates that this type of organization is 

^ The staff understands that Commissioner Alexander has instituted such a system. 



114 

more likely to operate in a manner inconsistent with the purpose 
and activities set forth in the application. The committee also may 
wish to consider generally whether information available to the In- 
ternal Revenue Service, other than that provided in the exemption 
application, should be used in the initial determination process for a 
new organization or should be used later in determining whether an 
audit should be made.^ 
Reviewmg Actions hy the IRS 

It appears that the best "safeguard" to prevent activities such as the 
Special Service Staff is alert and sensitive management within the In- 
ternal Revenue Service. However, the committee may wish to consider 
independent actions that might be taken to institutionalize some 
safeguards. 

To the extent that the Special Service Staff (or the Ideological Or- 
ganizations Project) was stimulated by the White House, channeling 
and reporting of communications as described above may be appropri- 
ate. To the extent it was stimulated by congressional activities, the com- 
mittee may wish to consider similar reporting by the Service to the 
committee about congressional inquiries. 

The Special Service Staff' operated for about 21/^ years before a 
functional statement describing the SSS was included in the Internal 
Revenue Manual. Also, the functional statement did not fully explain 
what the SSS did. As a consequence, it was difficult for the Congress 
(or the public) to review the group's action. The committee may wish 
to consider whether each Na^tional Office task force (or other task force 
of national scope) that operates longer than a specified period {e.g-, 
90 days) should be disclosed to the Congress and the public, with a 
clear description of its activities. 

An important aspect of the Special Service Staff (and the Ideologi- 
cal Organizations program) was the relationship of the National Of- 
fice to the various district offices. The National Office generally does 
not direct the field to initiate audits (and the field referral documents 
used by the Special Service Staff generally reflect this policy. However, 
in both these projects, there was direction of the field by the National 
Office. The committee may wish to consider whether it should receive a 
report regarding any program of National Office field referrals. 

8 If it is determined that such information should be acquired and used, additional ques- 
tions should be considered. For example, who should have the responsibility within the In- 
ternal Revenue Service for obtaining additional information, how should such Information be 
obtained, and what standards should be established to insure that this activity is not used 
in v; ilatlon of the First Amendment rights of organizations in question? 

o